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The end of the Bertrand Paradox?

Author

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  • Marie-Laure Cabon-Dhersin

    (Centre d'Economie de la Sorbonne - Paris School of Economics & Ecole normale supérieure de Cachan)

  • Nicolas Drouhin

    (Centre d'Economie de la Sorbonne - Paris School of Economics & Ecole normale supérieure de Cachan)

Abstract

This paper analyzes 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 implying a convex short term cost function in the second stage of the game. We show that the collusive outcome is the only predictable issue of the whole game i.e. the unique non Pareto-dominated pure strategy Nash Equilibrium. Technically, this paper bridges the capacity constraint literature on price competition with the one of convex cost function, solving the Bertrand Paradox in the line of Edgeworth's research program

Suggested Citation

  • 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.
    • Handle: RePEc:mse:cesdoc:10079
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    More about this item

    Keywords

    Price competition; collusion; convex cost; Bertrand Paradox; capacity constraint; constant returns-to-scale;
    All these keywords.

    JEL classification:

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

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