Tacit Collusion in a One‐Shot Game of Price Competition with Soft Capacity Constraints

Cabon-Dhersin, Marie-Laure; Drouhin, Nicolas

doi:10.1111/jems.12049

Cited by 10 publications

(7 citation statements)

References 25 publications

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“…In order to regain a unique equilibrium price, we could make use of Dixon's (1992) 5 modi…ed Bertrand-Edgeworth game, where in addition to their price the …rms also announce the maximum quantity they are willing to sell at it. Together with a demand sharing rule 6 and a freely chosen 7 rationing rule, this resolves Dastidar's problem that downward deviations are too costly, and by having …rms commit to supply -if needed -more than their share in the competitive equilibrium, it removes the incentive for rivals to increase their price above the competitive one (residual demand is zero), thus destroying the Edgeworth Cycle.…”

Section: Pd(p)=2 C(d(p)=2mentioning

confidence: 99%

“…Second, from the game-theoretic point of view, Dixon's model is subsumed in ours. If we restrict attention to price schedules that take only two values, a su¢ ciently high one, at which no one buys, and an "interior" price, then 5 See Allen and Hellwig (1986) as well. 6 He assumes equal sharing, though he also assumes that all …rms have the same cost function.…”

Section: Pd(p)=2 C(d(p)=2mentioning

confidence: 99%

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Bertrand and the long run

Burguet

Sákovics

2017

International Journal of Industrial Organization

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We propose a new model of simultaneous price competition, where …rms o¤er personalized prices to consumers, who then independently decide which o¤er to accept, if any. Even with decreasing returns to scale, this decentralized market mechanism has a unique equilibrium, which is independent of any exogenously imposed rule for rationing or demand sharing. In equilibrium, the …rms behave as if they were price takers, leading to the competitive outcome (but positive pro…ts). Given the unique result for the short-run competition, we are able to investigate the …rms'ex ante capital investment decisions. While there is underinvestment in the long-run equilibrium, the overall outcome is more competitive than one-shot Cournot competition.

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Section: Pd(p)=2 C(d(p)=2mentioning

confidence: 99%

Section: Pd(p)=2 C(d(p)=2mentioning

confidence: 99%

Bertrand and the long run

Burguet

Sákovics

2017

International Journal of Industrial Organization

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“…We use the payoff-dominance criterion. 11 This approach is similar to that in Cabon-Dhersin and Drouhin (2014). Moreover, some studies focus on a collusive price to narrow the set of Nash equilibria (e.g.…”

Section: Modelmentioning

confidence: 99%

Optimal Export Policy With Upstream Price Competition

Mizuno

Takauchi

2019

The Manchester School

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We present a third‐market model with a vertical trading structure, in which upstream input suppliers engage in homogeneous price competition. We show that, under downstream Bertrand competition, a non‐monotonic export policy may result. Specifically, the optimal policy of the exporting country can turn into a tax–subsidy–tax as the degree of product substitutability rises. We also confirm the conventional result for which the optimal policy is an export subsidy (tax) if there is Cournot (Bertrand) competition downstream, provided that the number of domestic suppliers is at an intermediate level. We further discuss bilateral policy interventions when both exporting countries offer a subsidy/tax to their domestic downstream firms. We show that a non‐monotonic export policy (tax–subsidy–tax) can arise even in this extended setting.

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“…A Pareto-optimal solution over the space of equilibria is an equilibrium solution such that for any other equilibrium, at least one agent prefers the former solution to the latter. Pareto-Optimality is often an important criterion in games with multiple equilibria; research suggests that in Bertrand Markets, Pareto optimal equilibria are the solutions that arise in practice [14].…”

Section: (Pareto-optimality)mentioning

confidence: 99%

Price Competition in Networked Markets: How Do Monopolies Impact Social Welfare?

Anshelevich

Sekar

2015

Web and Internet Economics

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We study the efficiency of allocations in large markets with a network structure where every seller owns an edge in a graph and every buyer desires a path connecting some nodes. While it is known that stable allocations in such settings can be very inefficient, the exact properties of equilibria in markets with multiple sellers are not fully understood even in single-source singlesink networks. In this work, we show that for a large class of natural buyer demand functions, we are guaranteed the existence of an equilibrium with several desirable properties. The crucial insight that we gain into the equilibrium structure allows us to obtain tight bounds on efficiency in terms of the various parameters governing the market, especially the number of monopolies M . All of our efficiency results extend to markets without the network structure.While it is known that monopolies can cause large inefficiencies in general, our main results for single-source single-sink networks indicate that for several natural demand functions the efficiency only drops linearly with M . For example, for concave demand we prove that the efficiency loss is at most a factor 1 + M 2 from the optimum, for demand with monotone hazard rate it is at most 1+M , and for polynomial demand the efficiency decreases logarithmically with M . In contrast to previous work that showed that monopolies may adversely affect welfare, our main contribution is showing that monopolies may not be as 'evil' as they are made out to be; the loss in efficiency is bounded in many natural markets. Finally, we consider more general, multiple-source networks and show that in the absence of monopolies, mild assumptions on the network topology guarantee an equilibrium that maximizes social welfare.

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Tacit Collusion in a One‐Shot Game of Price Competition with Soft Capacity Constraints

Cited by 10 publications

References 25 publications

Bertrand and the long run

Bertrand and the long run

Optimal Export Policy With Upstream Price Competition

Price Competition in Networked Markets: How Do Monopolies Impact Social Welfare?

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