Bertrand price competition with differentiated commodities |
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| Affiliation: | 1. Carnegie Mellon University, H. John Heinz III College, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890, USA;2. Department for Operations Research and Control Systems, Institute of Statistics and Mathematical Methods in Economics, Vienna University of Technology, Argentinierstr. 8, 1040 Vienna, Austria;3. Wittgenstein Centre for Demography and Global Human Capital (IIASA, VID/ÖAW, WU),Vienna Institute of Demography/Austrian Academy of Sciences, Wohllebengasse 12–14, 1040 Vienna, Austria;4. Department of Business Administration, University of Vienna, Oskar-Morgenstern-Platz 1, 1090 Vienna, Austria;5. Department of Econometrics and Operations Research & CentER, Tilburg University, PO Box 90153, LE Tilburg 5000, The Netherlands;6. Department of Economics, University of Antwerp, Prinsstraat 13, Antwerp 2000, Belgium |
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| Abstract: | This develops a general equilibrium, differentiated commodity version of Bertrand price competition. We study two, related market games in which buyers as well as sellers announce both quantities and prices. In the first game, buyers' strategies are artificially restricted. The Nash allocations of this game will be nearly competitive, provided that the commodities supplied by sellers are sufficiently similar. In the second game, the restriction on buyers' strategies is relaxed and a stronger solution criterion, called local perfection, is invoked. The locally perfect equilibria of the unrestricted game coincide the Nash equilibria of the restricted game. |
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