'Be Nice, Unless it Pays to Fight': A New Theory of Price Determination with Implications for Competition Policy

Jan Boone

No 3342, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper introduces a simple extensive form pricing game. The Bertrand outcome is a Nash equilibrium outcome in this game, but it is not necessarily subgame perfect. The subgame perfect equilibrium outcome features the following comparative static properties. The more similar firms are, the higher the equilibrium price. Further, a new firm that enters the industry or an existing firm that becomes more efficient can raise the equilibrium price. The subgame perfect equilibrium is used to formalize price leadership, joint dominance and efficiency offence.

Keywords: Bertrand paradox; Price leadership; Mergers; Joint dominance; Efficiency offense (search for similar items in EconPapers)
JEL-codes: D43 L11 L41 (search for similar items in EconPapers)
Date: 2002-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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