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Dynamic Bertrand competition with intertemporal demand

  • Weibull, Jörgen

    ()

    (Dept. of Economics, Stockholm School of Economics)

  • Dutta, Prajit

    (Columbia University)

  • Matros, Alexander

    (University College London)

In the text-book model of dynamic Bertrand competition, competing firms meet the same demand function every period. This is not a satisfactory model of the demand side if consumers can make intertemporal substitution between periods. Each period then leaves some residual demand to future periods, and consumers who observe price under-cutting may correctly anticipate en ensuing price war and therefore postpone their purchases. Accordingly, the interaction between the firms no longer constitutes a repeated game, and hence falls outside the domain of the usual Folk theorems. We analyze collusive pricing in such situations, and study cases when consumers have perfect and imperfect foresight and varying degrees of patience. It turns out that collusion against patient and forward-looking consumers is easier to sustain than collusion in the text-book model.

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File URL: http://swopec.hhs.se/hastef/papers/hastef0493.pdf
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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 493.

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Length: 21 pages
Date of creation: 01 Mar 2002
Date of revision: 15 Feb 2005
Handle: RePEc:hhs:hastef:0493
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  1. Dutta Prajit K., 1995. "A Folk Theorem for Stochastic Games," Journal of Economic Theory, Elsevier, vol. 66(1), pages 1-32, June.
  2. Faruk Gul & Hugo Sonnenschein & Robert Wilson, 2010. "Foundations of Dynamic Monopoly and the Coase Conjecture," Levine's Working Paper Archive 232, David K. Levine.
  3. Lawrence M. Ausubel & Raymond J. Deneckere, 1987. "One is Almost Enough for Monopoly," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 255-274, Summer.
  4. Eric Maskin & Jean Tirole, 1985. "A Theory of Dynamic Oligopoly, II: Price Competition," Working papers 373, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Kirman, Alan P & Sobel, Matthew J, 1974. "Dynamic Oligopoly with Inventories," Econometrica, Econometric Society, vol. 42(2), pages 279-87, March.
  6. Faruk Gul, 1987. "Noncooperative Collusion in Durable Goods Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 248-254, Summer.
  7. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
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