Economic Theory Bulletin

, Volume 4, Issue 2, pp 151–166

Stability in price competition revisited

  • Marta Faias
  • Javier Hervés-Estévez
  • Emma Moreno-García
Research Article
  • 79 Downloads

Abstract

We consider consumers with the same reservation price, who desire to buy at most one unit of a good. Firms compete only in prices, but there are other features firms cannot control that would eventually lead an agent to buy in one firm or another. We introduce such uncertainty in a model of a price competition game with incomplete information. This competition takes place under stability and we provide equilibrium existence results. We analyze different specifications of residual demands which yield further interpretations that deepen the phenomenon of price dispersion, Bertrand’s paradox and market power.

Keywords

Price competition Incomplete information Nash equilibrium Approximate equilibrium Price dispersion 

JEL Classification

D4 L13 L00 L1 C70 

References

  1. Balder, E.J.: Generalized equilibrium results for games with incomplete information. Math. Oper. Res. 13, 265–276 (1988)CrossRefGoogle Scholar
  2. Balder, E.J.: An equilibrium existence result for games with incomplete information and indeterminate outcomes. J. Math. Econ. 40, 297–320 (2004)CrossRefGoogle Scholar
  3. Bagwell, K., Lee, G.: Number of firms and price competition. Working-Paper (2014)Google Scholar
  4. Carbonell-Nicolau, O., McLean, R.P.: On the existence of Nash equilibrium in Bayesian games. Working Paper. Rutgers University (2014)Google Scholar
  5. Chamberlin, E.: The Theory of Monopolistic Competition. Harvard University Press, Cambridge (1933)Google Scholar
  6. Chamberlin, E.: Monopolistic imperfect competition? Q. J. Econ. 51, 557–580 (1937)CrossRefGoogle Scholar
  7. He, W., Yannelis, N.C.: Discontinuous games with asymmetric information: an extension of Reny’s existence theorem. Games Econ. Behav. 91, 26–35 (2015a)CrossRefGoogle Scholar
  8. He, W., Yannelis, N.C.: Existence of equilibria in discontinuous Bayesian games. Working-Paper (2015b)Google Scholar
  9. Hotelling, H.: Stability in competition. Econ. J. 39, 41–57 (1929)CrossRefGoogle Scholar
  10. Kaldor, N.: Market imperfection and excess capacity. Economica 2, 33–50 (1935)CrossRefGoogle Scholar
  11. Milgrom, P., Weber, R.: Distributional strategies for games with incomplete information. Math. Oper. Res. 10, 619–632 (1985)CrossRefGoogle Scholar
  12. Okun, A.M.: Prices and Quantities: A Macroeconomic Analysis. The Brookings Institution, Washington, D.C. (1981)Google Scholar
  13. Reny, P.J.: On the existence of pure and mixed strategy Nash equilibria in discontinuous games. Econometrica 67, 1029–1056 (1999)CrossRefGoogle Scholar
  14. Salop, S., Stiglitz, J.: Bargains and ripoffs: a model of monopolistically competitive price dispersion. Rev. Econ. Stud. 44, 493–510 (1977)CrossRefGoogle Scholar
  15. Spulber, D.F.: Bertrand competition when rivals’ costs are unknown. J. Ind. Econ. 43(1), 1–11 (1995)CrossRefGoogle Scholar
  16. Varian, H.R.: A model of sales. Am. Econ. Rev. 70, 651–659 (1980)Google Scholar

Copyright information

© Society for the Advancement of Economic Theory 2015

Authors and Affiliations

  • Marta Faias
    • 1
  • Javier Hervés-Estévez
    • 2
  • Emma Moreno-García
    • 3
  1. 1.Universidade Nova de Lisboa, FCT and CMALisbonPortugal
  2. 2.Universidad de VigoVigoSpain
  3. 3.Universidad de SalamancaSalamancaSpain

Personalised recommendations