Social power as a solution to the Bertrand Paradox

Renato Soeiro and Alberto Adrego Pinto

MPRA Paper from University Library of Munich, Germany

Abstract: We show that in a duopoly with homogeneous consumers, if these are negatively influenceable by each other behavior (e.g. congestion/ snob/ Veblen/ network effects), a pure price equilibrium with positive profits for both firms exists. Furthermore, even in the case products are undifferentiated, an equilibrium where firms charge different (positive) prices and have different profits exists. Thus, when firms engage in uniform price competition, heterogeneity, and in particular non-atomicity in the distribution of preferences, is neither a necessary condition to ensure existence, nor to achieve asymmetries. We further show that in the case products are differentiated, social differentiation overcomes the effect of standard differentiation in creating price asymmetries.

Keywords: Social influence; Bertrand duopoly; Bertrand competition; network effects; product differentiation; homogeneous products; pure price equilibrium; linear demand. (search for similar items in EconPapers)
JEL-codes: C72 D00 D01 D03 D40 D43 L00 L13 (search for similar items in EconPapers)
Date: 2019-06-02
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind, nep-mic and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:94271

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