Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Friday, December 24, 2010

The end of the Bertrand Paradox?

Posted by D. Danie Sokol

Marie-Laure Cabon-Dhersin (Centre d'Economie de la Sorbonne - Paris School of Economics & Ecole normale supérieure de Cachan) and Nicolas Drouhin (Centre d'Economie de la Sorbonne - Paris School of Economics & Ecole normale supérieure de Cachan) ask about The end of the Bertrand Paradox?

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.

http://lawprofessors.typepad.com/antitrustprof_blog/2010/12/the-end-of-the-bertrand-paradox.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef0147e04269fa970b

Listed below are links to weblogs that reference The end of the Bertrand Paradox?:

Comments

Post a comment