Relative profit maximization and Bertrand equilibrium with quadratic cost functions
We study the Bertrand equilibrium in duopoly in which two firms produce a homogeneous good under quadratic cost functions, and they seek to maximize the weighted sum of their absolute and relative profits. We show that there exists a range of the equilibrium prices in duopolistic equilibria. This range of equilibrium prices is narrower and lower than the range of the equilibrium prices in duopolistic equilibria under pure absolute profit maximization, and the larger the weight on the relative profit, the narrower and lower the range of the equilibrium prices. In this sense relative profit maximization is more aggressive than absolute profit maximization.
Volume (Year): 2 (2013)
Issue (Month): 3 ()
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- Yasuhito Tanaka, 2013.
"Irrelevance of the choice of strategic variables in duopoly under relative profit maximization,"
Economics and Business Letters,
Oviedo University Press, vol. 2(2), pages 75-83.
- Tanaka, Yasuhito, 2014. "Irrelevance of the choice of strategic variables in duopoly under relative profit maximization," MPRA Paper 55891, University Library of Munich, Germany.
- Matsumura, Toshihiro & Matsushima, Noriaki & Cato, Susumu, 2013. "Competitiveness and R&D competition revisited," Economic Modelling, Elsevier, vol. 31(C), pages 541-547.
- Schaffer, Mark E., 1989. "Are profit-maximisers the best survivors? : A Darwinian model of economic natural selection," Journal of Economic Behavior & Organization, Elsevier, vol. 12(1), pages 29-45, August.
- Dastidar, Krishnendu Ghosh, 1995. "On the Existence of Pure Strategy Bertrand Equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(1), pages 19-32, January.
- Kockesen, Levent & Ok, Efe A., 1997.
"Negatively Interdependent Preferences,"
97-02, C.V. Starr Center for Applied Economics, New York University.
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