Tacit collusion in a one-shot game of price competition with soft capacity constraints
This paper analyses price competition in the case of two firms operating under constant returns to scale with more than one production factor. Factors are chosen sequentially in a two-stage game generating a soft capacity constraint and implying a convex short term cost function in the second stage of the game. We show that tacit collusion is the only predictable result of the whole game i.e. the unique payoff-dominant pure strategy Nash equilibrium. Technically, this paper bridges the capacity constraint literature on price competition and that of the convex cost function.
|Date of creation:||12 Jun 2012|
|Date of revision:|
|Note:||View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00709093|
|Contact details of provider:|| Web page: http://hal.archives-ouvertes.fr/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Abbink, Klaus & Brandts, Jordi, 2008. "24. Pricing in Bertrand competition with increasing marginal costs," Games and Economic Behavior, Elsevier, vol. 63(1), pages 1-31, May.
- Benoit, Jean-Pierre & Krishna, Vijay, 1987. "Dynamic Duopoly: Prices and Quantities," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 23-35, January.
- Dastidar, Krishnendu Ghosh, 1995. "On the Existence of Pure Strategy Bertrand Equilibrium," Economic Theory, Springer, vol. 5(1), pages 19-32, January.
- Novshek, William & Chowdhury, Prabal Roy, 2003. "Bertrand equilibria with entry: limit results," International Journal of Industrial Organization, Elsevier, vol. 21(6), pages 795-808, June.
- Cooper, Russell, et al, 1990. "Selection Criteria in Coordination Games: Some Experimental Results," American Economic Review, American Economic Association, vol. 80(1), pages 218-33, March.
- Beth Allen & Raymond Deneckere & Tom Faith & Dan Kovenock, 1995.
"Capacity precommitment as a barrier to entry: a Bertrand-Edgeworth approach,"
187, Federal Reserve Bank of Minneapolis.
- Dan Kovenock & Raymond Deneckere & Tom Faith & Beth Allen, 2000. "Capacity precommitment as a barrier to entry: A Bertrand-Edgeworth approach," Economic Theory, Springer, vol. 15(3), pages 501-530.
- Allen, B. & Deneckere, R. & Faith, T. & Kovenock, D., 1994. "Capacity Precommitment as a Barrier to Entry: A Bertrand- Engeworth Approach," Papers 9483, Tilburg - Center for Economic Research.
- Beth Allen & Raymond Deneckere & Tom Faith & Dan Kovenock, 1994. "Capacity Precommitment as a Barrier to Entry:A Bertrand-Edgeworth Approach," Industrial Organization 9411002, EconWPA, revised 14 Nov 1994.
- Allen, B. & Deneckere, R. & Faith, T. & Kovenock, D., 1994. "Capacity Precommitment as a Barrier to Entry: A Bertrand-Edgeworth Approach," Purdue University Economics Working Papers 1062, Purdue University, Department of Economics.
- Marie-Laure Cabon-Dhersin & Nicolas Drouhin, 2010. "The end of the Bertrand Paradox ?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00542486, HAL.
- Marie-Laure Cabon-Dhersin & Nicolas Drouhin, 2010. "The end of the Bertrand Paradox ?," Documents de travail du Centre d'Economie de la Sorbonne 10079, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- Prabal Roy Chowdhury, 2009.
"Bertrand competition with non-rigid capacity constraints,"
Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers
09-02, Indian Statistical Institute, New Delhi, India.
- Roy Chowdhury, Prabal, 2009. "Bertrand competition with non-rigid capacity constraints," Economics Letters, Elsevier, vol. 103(1), pages 55-58, April.
- Prabal, Roy Chowdhury, 2008. "Bertrand Competition with Non-rigid Capacity Constraints," MPRA Paper 9172, University Library of Munich, Germany.
- Dixon, Huw, 1986. "The Cournot and Bertrand Outcomes as Equilibria in a Strategic Metagame," Economic Journal, Royal Economic Society, vol. 96(380a), pages 59-70, Supplemen.
- Bagh, Adib, 2010. "Pure strategy equilibria in Bertrand games with discontinuous demand and asymmetric tie-breaking rules," Economics Letters, Elsevier, vol. 108(3), pages 277-279, September.
- Baye, Michael R. & Morgan, John, 1999. "A folk theorem for one-shot Bertrand games," Economics Letters, Elsevier, vol. 65(1), pages 59-65, October.
- Switgard Feuerstein, 2005. "Collusion in Industrial Economics—A Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 163-198, December.
- Todd R. Kaplan & David Wettstein, 2000. "The possibility of mixed-strategy equilibria with constant-returns-to-scale technology under Bertrand competition," Spanish Economic Review, Springer, vol. 2(1), pages 65-71.
- Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
- Hoernig, Steffen H., 2002. "Mixed Bertrand equilibria under decreasing returns to scale: an embarrassment of riches," Economics Letters, Elsevier, vol. 74(3), pages 359-362, February.
- Steffen Hoernig, 2007. "Bertrand Games and Sharing Rules," Economic Theory, Springer, vol. 31(3), pages 573-585, June.
- Krishnendu Ghosh Dastidar, 2011. "Existence of Bertrand equilibrium revisited," International Journal of Economic Theory, The International Society for Economic Theory, vol. 7(4), pages 331-350, December.
- Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
- Dastidar, Krishnendu Ghosh, 2011. "Bertrand equilibrium with subadditive costs," Economics Letters, Elsevier, vol. 112(2), pages 202-204, August.
- Saporiti Alejandro & Coloma Germán, 2010. "Bertrand Competition in Markets with Fixed Costs," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-30, June.
- Krishnendu Dastidar, 2001. "Collusive outcomes in price competition," Journal of Economics, Springer, vol. 73(1), pages 81-93, February.
When requesting a correction, please mention this item's handle: RePEc:hal:cesptp:hal-00709093. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If references are entirely missing, you can add them using this form.