Relative profit maximization and Bertrand equilibrium with convex cost functions

Atsuhiro Satoh () and Yasuhito Tanaka

Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), 2014, vol. 8, No 2014-34, 15 pages

Abstract: This study derives pure strategy Bertrand equilibria in a duopoly in which two firms produce a homogeneous good with convex cost functions and seek to maximize the weighted sum of their absolute and relative profits. The study shows that there exists a range of equilibrium prices in duopolistic equilibria. This range of equilibrium prices is narrower and lower than the range of equilibrium prices in duopolistic equilibria under pure absolute profit maximization. Moreover, the larger the weight on the relative profit, the narrower and lower the range of equilibrium prices. 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
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Citations: View citations in EconPapers (1)

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Working Paper: Relative profit maximization and Bertrand equilibrium with convex cost functions (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifweej:201434

DOI: 10.5018/economics-ejournal.ja.2014-34

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