Pricing, Product Diversity and Search Costs: A Bertrand-Chamberlin-Diamond Model
Bertrand argued that price would be driven down to marginal cost even with only two firms in the market. Chamberlin, by introducing product differentiation, argued that price will exceed marginal cost even when there are many firms. Thus product differentiation resolves the "Bertrand Paradox". Diamond argued that firms would set monopoly prices in the Bertrand context if consumers face search costs.
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Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series
qt4cq0m6s3, Department of Agricultural & Resource Economics, UC Berkeley.
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338, University of Virginia, Department of Economics.
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1994034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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- Asher Wolinsky, 1984. "Product Differentiation with Imperfect Information," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 53-61.
- Raymond Deneckere & Michael Rothschild, 1992. "Monopolistic Competition and Preference Diversity," Review of Economic Studies, Oxford University Press, vol. 59(2), pages 361-373.
- Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
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