Profits in pure Bertrand oligopolies
This paper demonstrates that the Bertrand paradox does not hold if cost functions are strictly convex. Instead, multiple equilibria exist which can be Pareto-ranked. The paper shows that the Pareto-dominant equilibrium may imply profus higher than in Cournot competition or may even sustain perfect cartelization. The potential scope for implicit collusion is discussed for the case that the Pareto-dominant noncooperative equilibrium does not support perfect cartelization. Due to multiple non-cooperative equilibria, the discussion involves finitely repeated Bertrand games as well. The paper discusses several strategies which may support implicit collusion. 1t develops the notion of punishment-proofness, and it demonstrates that strongly renegotiationproof equilibria exist for sujficiently high discount factors. Finally, extensions are discussed which cover Stackeiberg leadership, fixed and sunk costs and endogenous market structures.
|Date of creation:||1995|
|Date of revision:|
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- Joseph Farrell and Eric Maskin., 1987.
"Renegotiation in Repeated Games,"
Economics Working Papers
8759, University of California at Berkeley.
- Friedman, J.W. & Thisse, J.-F., .
"Sustainable collusion in oligopoly with free entry,"
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1084, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Friedman, James W. & Thisse, Jacques-Francis, 1994. "Sustainable collusion in oligopoly with free entry," European Economic Review, Elsevier, vol. 38(2), pages 271-283, February.
- Friedman, J. & Thisse, J.F., 1992. "Sustainable Collusion in Oligopoly with Free Entry," Papiers d'Economie MathÃ©matique et Applications 92-18, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1).
- Grossman, Sanford J, 1981. "Nash Equilibrium and the Industrial Organization of Markets with Large Fixed Costs," Econometrica, Econometric Society, vol. 49(5), pages 1149-72, September.
- Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-54, May.
- Deneckere, R., 1983. "Duopoly supergames with product differentiation," Economics Letters, Elsevier, vol. 11(1-2), pages 37-42.
- Evans, Robert & Maskin, Eric, 1989. "Efficient renegotiation--proof equilibria in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 361-369, December.
- van Damme, E.E.C., 1989.
"Renegotiation-proof equilibria in repeated prisoners' dilemma,"
Other publications TiSEM
df9180a1-537e-4331-9f2a-7, Tilburg University, School of Economics and Management.
- van Damme, Eric, 1989. "Renegotiation-proof equilibria in repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 47(1), pages 206-217, February.
- van Damme,Eric, 1986. "Renegotiation-proof equilibria in repeated Prisoner`s dilemma," Discussion Paper Serie A 84, University of Bonn, Germany.
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