IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Tacit collusion in a one-shot game of price competition with soft capacity constraints

Author Info

  • Marie-Laure Cabon-Dhersin

    ()

    (CREAM - Centre de Recherche en Economie Appliquée à la Mondialisation - Université de Rouen : EA4702)

  • Nicolas Drouhin

    ()

    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

Abstract

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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hal.archives-ouvertes.fr/docs/00/73/85/99/PDF/DrouhinCabon2012def.pdf
Download Restriction: no

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number hal-00709093.

as
in new window

Length:
Date of creation: 12 Jun 2012
Date of revision:
Handle: RePEc:hal:cesptp:hal-00709093
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/

Keywords: price competition; tacit collusion; convex cost; Bertrand Paradox; capacity constraint;

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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.:

as in new window
  1. 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.
  2. Beth Allen & Raymond Deneckere & Tom Faith & Dan Kovenock, 1995. "Capacity precommitment as a barrier to entry: a Bertrand-Edgeworth approach," Staff Report 187, Federal Reserve Bank of Minneapolis.
  3. Krishnendu Dastidar, 2001. "Collusive outcomes in price competition," Journal of Economics, Springer, vol. 73(1), pages 81-93, February.
  4. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. 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.
  6. Dastidar, Krishnendu Ghosh, 1995. "On the Existence of Pure Strategy Bertrand Equilibrium," Economic Theory, Springer, vol. 5(1), pages 19-32, January.
  7. Benoit, Jean-Pierre & Krishna, Vijay, 1987. "Dynamic Duopoly: Prices and Quantities," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 23-35, January.
  8. 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.
  9. 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.
  10. Switgard Feuerstein, 2005. "Collusion in Industrial Economics—A Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 163-198, December.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  16. 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.
  17. Baye, Michael R. & Morgan, John, 1999. "A folk theorem for one-shot Bertrand games," Economics Letters, Elsevier, vol. 65(1), pages 59-65, October.
  18. 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.
  19. Steffen Hoernig, 2007. "Bertrand Games and Sharing Rules," Economic Theory, Springer, vol. 31(3), pages 573-585, June.
  20. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
  21. 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.
  22. Dastidar, Krishnendu Ghosh, 2011. "Bertrand equilibrium with subadditive costs," Economics Letters, Elsevier, vol. 112(2), pages 202-204, August.
Full references (including those not matched with items on IDEAS)

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

as in new window


Cited by:

  1. Roberto Burguet & József Sákovics, 2014. "Bertrand and the Long Run," Working Papers 777, Barcelona Graduate School of Economics.
    • Roberto Burguet (Institute for Economic Analysis, CSIC, and Barcelona GSE) & József Sákovics (The University of Edinburgh), 2014. "Bertrand and the long run," ESE Discussion Papers 244, Edinburgh School of Economics, University of Edinburgh.
  2. WAUTHY, Xavier Y. & ,, 2014. "From Bertrand to Cournot via Kreps and Scheinkman: a hazardous journey," CORE Discussion Papers 2014026, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Access and download statistics

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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.