Bertrand's price competition in markets with fixed costs

Alejandro Saporiti and German Coloma ()

No 549, RCER Working Papers from University of Rochester - Center for Economic Research (RCER)

Abstract: This paper provides necessary and sufficient conditions for the existence of a pure strategy Bertrand equilibrium in a model of price competition with fixed costs. It unveils an interesting and unexplored relationship between Bertrand competition and natural monopoly. That relationship points out that the non-subadditivity of the cost function at the output level corresponding to the oligopoly break-even price, denoted by D(pL (n)), is sufficient to guarantee that the market supports a (not necessarily symmetric) Bertrand equilibrium in pure strategies with two or more firms supplying at least D(pL (n)). Conversely, the existence of a pure strategy equilibrium ensures that the cost function is not subadditive at every output greater than or equal to D(p(n)).

Keywords: Bertrand competition; cost subadditivity; fixed costs; natural monopoly. (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2009-05
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Bertrand's price competition in markets with fixed costs (2008)
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