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List Pricing And Pure Strategy Outcomes In A Bertrand-Edgeworth Duopoly

  • Antón García Díaz
  • Praveen Kujal


Non-existence of a pure strategy equilibrium in a Bertrand-Edgeworth duopoly model is analyzed. The standard model is modified to include a list pricing stage and a subsequent price discounting stage. Both firms first simultaneously choose a maximum list price and then decide to lower the price, or not, in a subsequent discounting stage. List pricing works as a credible commitment device that induces the pure strategy outcome. It is shown that for a general class of rationing rules there exists a sub-game perfect equilibrium that involves both firms playing pure strategies. This equilibrium payoff dominates any other sub-game perfect equilibrium of the game. Further unlike the dominant firm interpretation of a price leader, we show that the small firm may have incentives to commit to a low price and in this sense assume the role of a leader.

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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we034918.

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Date of creation: Oct 2003
Date of revision:
Handle: RePEc:cte:werepe:we034918
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  1. Sorgard, L., 1995. "Judo Economics Reconsidered: Capacity Limitation, Entry and Collusion," Papers 18/95, Norwegian School of Economics and Business Administration-.
  2. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
  3. Levitan, Richard & Shubik, Martin, 1972. "Price Duopoly and Capacity Constraints," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(1), pages 111-22, February.
  4. Allen, Beth & Hellwig, Martin, 1986. "Price-Setting Firms and the Oligopolistic Foundations of Perfect Competition," American Economic Review, American Economic Association, vol. 76(2), pages 387-92, May.
  5. Van Damme, E. & Hurkens, S., 1993. "Commitment Robust Equilibria and Endogenous Timing," Papers 9356, Tilburg - Center for Economic Research.
  6. Dixon, Huw, 1990. "Bertrand-Edgeworth Equilibria when Firms Avoid Turning Customers Away," Journal of Industrial Economics, Wiley Blackwell, vol. 39(2), pages 131-46, December.
  7. Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 1-26.
  8. Beth Allen & Martin Hellwig, 1986. "Bertrand-Edgeworth Oligopoly in Large Markets," Review of Economic Studies, Oxford University Press, vol. 53(2), pages 175-204.
  9. Huw Dixon, 1987. "Approximate Bertrand Equilibria in a Replicated Industry," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 47-62.
  10. Raymond J. Deneckere & Dan Kovenock, 1992. "Price Leadership," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 143-162.
  11. Maskin, Eric, 1986. "The Existence of Equilibrium with Price-Setting Firms," American Economic Review, American Economic Association, vol. 76(2), pages 382-86, May.
  12. Vives, Xavier, 1986. "Rationing rules and Bertrand-Edgeworth equilibria in large markets," Economics Letters, Elsevier, vol. 21(2), pages 113-116.
  13. Tilman Börgers, 1992. "Iterated Elimination of Dominated Strategies in a Bertrand-Edgeworth Model," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 163-176.
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