Alternative conjectures in a Bertrand-Edgeworth model

Marcel Canoy*, Claus Weddepohl

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

In a model with increasing marginal costs the 'normal' Bertrand equilibrium does not exist, as is well known. We study a Bertrand duopoly where each firm has a given market share at equal prices that may differ from 1 2. Firms have conjectures about the way in which the competitor will react on a price change at a given price pair. These conjectures are different for price increases and price decreases. Undercutting is always matched. Price pairs are feasible only if either both prices are equal or they differ by at least α, α being a small positive number, by which α-equilibria are defined. It is proved that, given the assumptions, α-equilibria exist, among which appear both single price equilibria and equilibria where the prices differ by α.

Original languageEnglish
Pages (from-to)577-598
Number of pages22
JournalEuropean Journal of Political Economy
Volume11
Issue number3
DOIs
Publication statusPublished - Sep 1995
Externally publishedYes

Bibliographical note

Copyright:
Copyright 2015 Elsevier B.V., All rights reserved.

Keywords

  • Bertrand-Edgeworth competition
  • Conjectures

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