Profits in pure Bertrand oligopolies

Frank Stähler

No 703, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: This paper demonstrates that the Bertrand paradox does not hold if cost functions are strictly convex. Instead, multiple equilibria exist which can be Pareto-ranked. The paper shows that the Pareto-dominant equilibrium may imply profus higher than in Cournot competition or may even sustain perfect cartelization. The potential scope for implicit collusion is discussed for the case that the Pareto-dominant noncooperative equilibrium does not support perfect cartelization. Due to multiple non-cooperative equilibria, the discussion involves finitely repeated Bertrand games as well. The paper discusses several strategies which may support implicit collusion. 1t develops the notion of punishment-proofness, and it demonstrates that strongly renegotiationproof equilibria exist for sujficiently high discount factors. Finally, extensions are discussed which cover Stackeiberg leadership, fixed and sunk costs and endogenous market structures.

Keywords: Bertrand competition; Bertrand paradox; implicit collusion; renegotiationproofness; punishment-proofness (search for similar items in EconPapers)
JEL-codes: C72 D43 L13 (search for similar items in EconPapers)
Date: 1995
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:703

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