Relative profit maximization and Bertrand equilibrium with convex cost functions

Atsuhiro Satoh () and Yasuhito Tanaka

No 2014-7, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: The authors study pure strategy Bertrand equilibria in a duopoly in which two firms produce a homogeneous good with convex cost functions, and they seek to maximize the weighted sum of their absolute and relative profits. They show that there exists a range of the equilibrium price in duopolistic equilibria. This range of the equilibrium price is narrower and lower than the range of the equilibrium price in duopolistic equilibria under pure absolute profit maximization, and the larger the weight on the relative profit, the narrower and lower the range of the equilibrium price. In this sense relative profit maximization is more aggressive than absolute profit maximization.

Keywords: Bertrand equilibrium; convex cost function; relative profit maximization (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
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https://www.econstor.eu/bitstream/10419/92416/1/778287289.pdf (application/pdf)

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Journal Article: Relative profit maximization and Bertrand equilibrium with convex cost functions (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:20147

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