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Bertrand and the long run

Author

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  • Burguet, Roberto
  • Sákovics, József

Abstract

We propose a new model of simultaneous price competition, based on firms offering personalized prices to consumers. In a market for a homogeneous good and decreasing returns, the unique equilibrium leads to a uniform price equal to the marginal cost of each firm, at their share of the market clearing quantity. Using this result for the short-run competition, we then investigate the long-run investment decisions of the firms. While there is underinvestment, the overall outcome is more competitive than the Cournot model competition. Moreover, as the number of firms grows we approach the competitive long-run outcome.

Suggested Citation

  • Burguet, Roberto & Sákovics, József, 2014. "Bertrand and the long run," SIRE Discussion Papers 2015-38, Scottish Institute for Research in Economics (SIRE).
  • Handle: RePEc:edn:sirdps:626
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    File URL: http://hdl.handle.net/10943/626
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    References listed on IDEAS

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    6. Holmes, Thomas J, 1989. "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, American Economic Association, vol. 79(1), pages 244-250, March.
    7. Marie-Laure Cabon-Dhersin & Nicolas Drouhin, 2014. "Tacit Collusion in a One-Shot Game of Price Competition with Soft Capacity Constraints," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(2), pages 427-442, June.
    8. Dixon, Huw David, 1992. "The Competitive Outcome as the Equilibrium in an Edgeworthian Price-Quantity Model," Economic Journal, Royal Economic Society, vol. 102(411), pages 301-309, March.
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    Cited by:

    1. Jozsef Sakovics & Lluis Bru & Daniel Cardona, "undated". "Block sourcing," ESE Discussion Papers 287, Edinburgh School of Economics, University of Edinburgh.
    2. Cabon-Dhersin Marie-Laure & Drouhin Nicolas, 2017. "A general model of price competition with soft capacity constraints," Working Papers 2017-56, Center for Research in Economics and Statistics.
    3. Roberto Burguet & József Sákovics, 2017. "Competitive foreclosure," RAND Journal of Economics, RAND Corporation, vol. 48(4), pages 906-926, December.

    More about this item

    Keywords

    price competition; personalized prices; marginal cost pricing;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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