June 11, 2008
Bertrand-Edgeworth Equilibrium in Oligopoly
Posted by D. Daniel Sokol
ABSTRACT: This paper investigates a simultaneous move capacity constrained price competition game among three firms. I find that equilibria in an asymmetric oligopoly are substantially different from those in a duopoly and symmetric oligopoly. I characterize mixed strategy equilibria and show there exist possibilities of i) the existence of a continuum of equilibria ii) the smallest firm earning the largest profit per capacity and iii) non-identical supports of equilibrium mixed strategies, all of which never arise either in the duopoly or in the symmetric oligopoly. In particular, the second finding sheds light on a completely new pricing incentive in Bertrand competitions.
June 11, 2008 | Permalink
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