Price Competition or Tacit Collusion

Makoto Yano and Takashi Komatsubara ()
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Takashi Komatsubara: Institute of Economic Research, Kyoto University

No 807, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: Every now and then, we observe a fierce price war in a real world market, through which competing firms end up with a Bertrand-like price competition equilibrium. Despite this, very little has been known in the existing literature as to why a price competition market is formed. We address this question in the context of a choice between engaging in price competition and holding a price leader. Focusing on a duopoly market, we demonstrate that if supply is tight relative to demand, and if the cost differential between firms is reasonably large, a price competition market is formed non-cooperatively.

Keywords: Keywords: Price Competition; Price Leader; Market Organization Game (search for similar items in EconPapers)
JEL-codes: D21 D43 L11 L13 (search for similar items in EconPapers)
Pages: 33pages
Date: 2012-01
New Economics Papers: this item is included in nep-bec, nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:807

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