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Stability in price competition revisited

Author

Listed:
  • Faias, Marta
  • Hervés-Estévez, Javier
  • Moreno-García, Emma

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.

Suggested Citation

  • Faias, Marta & Hervés-Estévez, Javier & Moreno-García, Emma, 2014. "Stability in price competition revisited," MPRA Paper 62302, University Library of Munich, Germany, revised 31 Aug 2014.
    • Handle: RePEc:pra:mprapa:62302
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    File URL: https://mpra.ub.uni-muenchen.de/62302/1/MPRA_paper_62302.pdf
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    References listed on IDEAS

    as
    1. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 493-510.
    2. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    3. Balder, Erik J., 2004. "An equilibrium existence result for games with incomplete information and indeterminate outcomes," Journal of Mathematical Economics, Elsevier, vol. 40(3-4), pages 297-320, June.
    4. Spulber, Daniel F, 1995. "Bertrand Competition When Rivals' Costs Are Unknown," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 1-11, March.
    5. Paul R. Milgrom & Robert J. Weber, 1985. "Distributional Strategies for Games with Incomplete Information," Mathematics of Operations Research, INFORMS, vol. 10(4), pages 619-632, November.
    6. Erik J. Balder, 1988. "Generalized Equilibrium Results for Games with Incomplete Information," Mathematics of Operations Research, INFORMS, vol. 13(2), pages 265-276, May.
    7. Edward H. Chamberlin, 1937. "Monopolistic or Imperfect Competition?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 51(4), pages 557-580.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Price competition; incomplete information; Nash equilibrium; ap- proximate equilibrium; price dispersion.;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L00 - Industrial Organization - - General - - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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