Bertrand Competition in Markets with Fixed Costs

Alejandro Saporiti and German Coloma ()

The B.E. Journal of Theoretical Economics, 2010, vol. 10, issue 1, 30

Abstract: This paper provides necessary and sufficient conditions for the existence of a pure strategy Bertrand equilibrium in a model of price competition with fixed costs. It unveils an interesting and unexplored relationship between Bertrand competition and natural monopoly. That relationship points out that the non-subadditivity of the cost function at the output level corresponding to the oligopoly break-even price, denoted by D(pL(n)), is sufficient to guarantee that the market sustains a (not necessarily symmetric) Bertrand equilibrium in pure strategies with two or more firms supplying at least D(pL(n)). Conversely, the existence of a pure strategy equilibrium ensures that the cost function is not subadditive at every output greater than or equal to D(pL(n)).

Keywords: Bertrand competition; fixed costs; cost subadditivity; natural monopoly (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (20)

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DOI: 10.2202/1935-1704.1634

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