Equilibrium existence with spillover demand
Iwan Bos and
Dries Vermeulen
Economics Letters, 2021, vol. 208, issue C
Abstract:
Non-existence of a pure-strategy Nash equilibrium is a persistent problem in oligopoly models where sellers compete in prices and quantities. At the heart of this problem are unserved customers who are still willing to visit a less preferred supplier (i.e., so-called spillover demand). This note develops a consumer behavior model with spillover demand. Within this model there is a class of demand specifications for which a pure-strategy Nash equilibrium exists. This price-quantity equilibrium is shown to coincide with the Bertrand price equilibrium.
Keywords: Bertrand–Edgeworth competition; Edgeworth paradox; Oligopoly theory; Price-quantity competition; Spillover demand (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:208:y:2021:i:c:s0165176521003384
DOI: 10.1016/j.econlet.2021.110061
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