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Bertrand-Edgeworth competition with substantial product differentiation

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  • Robert Somogyi

    (Ecole Polytechnique (ParisTech))

Abstract

Since Kreps and Scheinkman's seminal article (1983) a large number of papers have analyzed capacity constraints' potential to relax price competition. However, the ensuing literature has assumed that products are either perfect or very close substitutes. Therefore none of the papers has investigated the interaction between capacity constraints and substantial local monopoly power. The aim of the present paper is to shed light on this question using a standard Hotelling setup. The high level of product dfferentiation results in a variety of equilibrium firm behavior and it generates at least one pure strategy equilibrium for any capacity level. Thus the presence of local monopoly power challenges one of the most general findings about Bertrand-Edgeworth competition: the non-existence of pure strategy equilibria for some capacity levels.

Suggested Citation

  • Robert Somogyi, 2013. "Bertrand-Edgeworth competition with substantial product differentiation," CERS-IE WORKING PAPERS 1332, Institute of Economics, Centre for Economic and Regional Studies.
    • Handle: RePEc:has:discpr:1332
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    File URL: http://econ.core.hu/file/download/mtdp/MTDP1332.pdf
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    References listed on IDEAS

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    3. Acemoglu, Daron & Bimpikis, Kostas & Ozdaglar, Asuman, 2009. "Price and capacity competition," Games and Economic Behavior, Elsevier, vol. 66(1), pages 1-26, May.
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    6. de Frutos, María-Ángeles & Fabra, Natalia, 2011. "Endogenous capacities and price competition: The role of demand uncertainty," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 399-411, July.
    7. Canoy, Marcel, 1996. "Product Differentiation in a Bertrand-Edgeworth Duopoly," Journal of Economic Theory, Elsevier, vol. 70(1), pages 158-179, July.
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    10. Esther Gal‐Or, 1997. "Exclusionary Equilibria in Health‐Care Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 5-43, March.
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    Cited by:

    1. Matthias Hunold & Kai Hüschelrath & Ulrich Laitenberger & Johannes Muthers, 2020. "Competition, Collusion, and Spatial Sales Patterns: Theory and Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 68(4), pages 737-779, December.
    2. Hunold, Matthias & Muthers, Johannes, 2019. "Spatial competition and price discrimination with capacity constraints," International Journal of Industrial Organization, Elsevier, vol. 67(C).
    3. Muthers, Johannes & Hunold, Matthias, 2017. "Capacity constrained price competition with transportation costs," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168248, Verein für Socialpolitik / German Economic Association.
    4. Matthias Hunold & Johannes Muthers, 2018. "Spatial Competition with Capacity Constraints and Subcontracting," Economics working papers 2018-13, Department of Economics, Johannes Kepler University Linz, Austria.

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    More about this item

    Keywords

    Duopoly; Bertrand-Edgeworth competition; Hotelling; Capacity constraint;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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