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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"Oligopolistic Competition and the Optimal Provision of Products,"
CORE Discussion Papers
1994034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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- Anderson, Simon P & Renault, Regis, 2000.
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International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(3), pages 721-42, August.
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"Monopolistic Competition and Preference Diversity,"
684, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Perloff, Jeffrey M & Salop, Steven, 1984.
"Equilibrium with product differentiation,"
Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series
qt4cq0m6s3, Department of Agricultural & Resource Economics, UC Berkeley.
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