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

  • 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)

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.

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

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Date of creation: 12 Jun 2012
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Handle: RePEc:hal:cesptp:hal-00709093
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  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.
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  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.
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  22. Dastidar, Krishnendu Ghosh, 2011. "Bertrand equilibrium with subadditive costs," Economics Letters, Elsevier, vol. 112(2), pages 202-204, August.
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