Bertrand-Edgeworth equilibrium: Manipulable residual demand

Prabal Roy Chowdhury ()
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Prabal Roy Chowdhury: Indian Statistical Institute, New Delhi

Discussion Papers from Indian Statistical Institute, Delhi

Abstract: In this paper we seek to provide a resolution of the Edgeworth paradox for the case where firms are free to supply less than the quantity demanded, the residual demand function is {\it manipulable} (a generalization of the proportional one) and prices vary over a grid. We demonstrate that a unique equilibrium in pure strategies exist whenever the number of firms is sufficiently large. Interestingly, the equilibrium involves excess production. Moreover, depending on the parameter values, the `folk theorem' of perfect competition may or may not hold. The results go through even if the firms are asymmetric, or produce to order.

Keywords: Bertrand equilibrium; pure strategy; manipulable residual demand (search for similar items in EconPapers)
JEL-codes: D41 D43 L13 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2004-05
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