Arbeitspapier

Price competition and convex costs

In the original model of pure price competition, due to Joseph Bertrand (1883), firms have linear cost functions. For any number of identical such price-setting firms, this results in the perfectly competitive outcome; the equilibrium price equal the firms' (constant) marginal cost. This paper provides a generalization of Bertrand's model from linear to convex cost functions. I analyze pure price competition both in a static setting - where the firms interact once and for all - and in dynamic setting - where they interact repeatedly over an indefinite future. Sufficient conditions are given for the existence of Nash equilibrium in the static setting and for subgame perfect equilibrium in the dynamic setting. These equilibrium sets are characterized, and it is shown that there typically exists a whole interval of Nash equilibrium prices in the static setting and subgame perfect equilibria in the dynamic setting. It is shown that firms may earn sizable profits and that their equilibrium profits may increase if their production costs go up.

Sprache
Englisch

Erschienen in
Series: SSE/EFI Working Paper Series in Economics and Finance ; No. 622

Klassifikation
Wirtschaft
Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
Thema
Bertrand competition
Preiswettbewerb
Duopol
Theorie

Ereignis
Geistige Schöpfung
(wer)
Weibull, Jörgen W.
Ereignis
Veröffentlichung
(wer)
Stockholm School of Economics, The Economic Research Institute (EFI)
(wo)
Stockholm
(wann)
2006

Handle
Letzte Aktualisierung
20.09.2024, 08:22 MESZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Weibull, Jörgen W.
  • Stockholm School of Economics, The Economic Research Institute (EFI)

Entstanden

  • 2006

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