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Bertrand-Edgeworth Oligopoly in Large Markets

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  • Beth Allen
  • Martin Hellwig

Abstract

The relation between perfectly competitive and monopolistically competitive equilibria is analysed for a Bertrand-Edgeworth model of a single market in which capacity constrained firms choose prices as strategies. The market always has a Nash equilibrium in pure or mixed strategies. As the number of firms increases, the corresponding equilibria converge in distribution to a perfectly competitive price. This result provides a justification for perfect competition that is based on an explicit account of price formation. However, monopoly prices persist with a positive but vanishing probability. Regularity or well defined inverse demand functions are not required.

Suggested Citation

  • Beth Allen & Martin Hellwig, 1986. "Bertrand-Edgeworth Oligopoly in Large Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(2), pages 175-204.
  • Handle: RePEc:oup:restud:v:53:y:1986:i:2:p:175-204.
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    File URL: http://hdl.handle.net/10.2307/2297646
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