Asymmetric Bertrand-Edgeworth Oligopoly and Mergers

Daisuke Hirata

The B.E. Journal of Theoretical Economics, 2009, vol. 9, issue 1, 25

Abstract: This paper investigates mixed strategy equilibria in a capacity-constrained price competition among three firms. It is shown that the equilibria in an asymmetric oligopoly are substantially different from those in a duopoly and symmetric oligopoly. In an asymmetric triopoly, it is possible that (i) a continuum of equilibria exists and that (ii) the lowest price of the smallest firm is higher than that of the others and the smallest firm earns more than the max-min profit in undominated strategies. In particular, the second finding sheds light on a new pricing incentive in Bertrand competitions. As an application, the equilibrium characterizations give rise to a new class of merger paradoxes.

Keywords: price competition; mixed strategy equilibrium; capacity constraint; homogeneous good; merger paradox (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (29)

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DOI: 10.2202/1935-1704.1500

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