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Bertrand-Edgeworth equilibrium: Manipulable residual demand

Author

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  • Prabal Roy Chowdhury

    () (Indian Statistical Institute, New Delhi)

Abstract

In this paper we seek to provide a resolution of the Edgeworth paradox for the case where firms are free to supply less than the quantity demanded, the residual demand function is {\it manipulable} (a generalization of the proportional one) and prices vary over a grid. We demonstrate that a unique equilibrium in pure strategies exist whenever the number of firms is sufficiently large. Interestingly, the equilibrium involves excess production. Moreover, depending on the parameter values, the `folk theorem' of perfect competition may or may not hold. The results go through even if the firms are asymmetric, or produce to order.

Suggested Citation

  • Prabal Roy Chowdhury, 2004. "Bertrand-Edgeworth equilibrium: Manipulable residual demand," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 04-15, Indian Statistical Institute, New Delhi, India.
  • Handle: RePEc:ind:isipdp:04-15
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    File URL: http://www.isid.ac.in/~planning/workingpapers/dp04-15.pdf
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    Cited by:

    1. Roy Chowdhury, Prabal, 2008. "Bertrand-Edgeworth equilibrium with a large number of firms," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 746-761, May.

    More about this item

    Keywords

    Bertrand equilibrium; pure strategy; manipulable residual demand;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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