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The end of the Bertrand Paradox ?

Marie-Laure Cabon-Dhersin () and Nicolas Drouhin ()

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: This paper analyzes price competition in the case of two firms operating under constant returns to scale with more than one production factor. Factors are chosen sequentially in a two-stage game implying a convex short term cost function in the second stage of the game. We show that the collusive outcome is the only predictable issue of the whole game i.e. the unique non Pareto-dominated pure strategy Nash Equilibrium. Technically, this paper bridges the capacity constraint literature on price competition with the one of convex cost function, solving the Bertrand Paradox in the line of Edgeworth's research program.

Keywords: Price competition; collusion; convex cost; Bertrand Paradox; capacity constraint; constant returns-to-scale.; Concurrence en prix; coût convexe; Paradoxe de Bertrand; contraintes de capacités; rendements d'échelles constants. (search for similar items in EconPapers)
Date: 2010-10
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Published in 2010

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