The Size of the Cost Asymmetry and Bertrand Competition PDF Download
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Author: Subhasish Dugar
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
The static Nash equilibrium solution for a discretized Bertrand-duopoly market with asymmetric constant marginal costs recommends that the low-cost firm should charge a price equal to the high-cost firm's marginal cost, and thus steal the entire market. This sharp prediction holds true for any size of the cost asymmetry. We develop three stylized asymmetric duopoly price competition models, steadily vary the size of the cost asymmetry across these models, and experimentally investigate the impact of this variation on competition. We find that the predictive power of the Bertrand solution crucially depends on the size of the cost asymmetry; the deviation of the observed average market price from the static Nash price systematically increases as the degree of the asymmetry narrows. Thus, behaviorally a smaller cost asymmetry may lead to higher prices in a Bertrand-duopoly - a key insight valuable from an antitrust standpoint.
Author: Subhasish Dugar
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
The static Nash equilibrium solution for a discretized Bertrand-duopoly market with asymmetric constant marginal costs recommends that the low-cost firm should charge a price equal to the high-cost firm's marginal cost, and thus steal the entire market. This sharp prediction holds true for any size of the cost asymmetry. We develop three stylized asymmetric duopoly price competition models, steadily vary the size of the cost asymmetry across these models, and experimentally investigate the impact of this variation on competition. We find that the predictive power of the Bertrand solution crucially depends on the size of the cost asymmetry; the deviation of the observed average market price from the static Nash price systematically increases as the degree of the asymmetry narrows. Thus, behaviorally a smaller cost asymmetry may lead to higher prices in a Bertrand-duopoly - a key insight valuable from an antitrust standpoint.
Author: Subhasish Dugar
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
This article tests the prediction of three discrete asymmetric duopoly price competition games in the laboratory. The games differ from each other in terms of the size of the cost asymmetry that induces a systematic variation in the difference between the firms' marginal costs. While the standard theory requires the low-cost firm to set a price just equal to the high-cost firm's marginal cost, which is identical across all three games, and win the entire market, intuition suggests that market price may increase with a decrease in the absolute difference between the two marginal costs. We develop a quantal response equilibrium model to test our competing conjecture.
Author:
Publisher: DIANE Publishing
ISBN: 1428958460
Category :
Languages : en
Pages : 26
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Book Description
Author: Federal Trade Federal Trade Commission
Publisher: CreateSpace
ISBN: 9781514145906
Category :
Languages : en
Pages : 26
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Book Description
By permitting firms to have different entry costs, I generalize two previously studied models of two-stage entry and pricing amongst Bertrand competitors. I find that the existing results depend critically on the symmetry assumption. For example, if firms' entry decisions are observed before price-setting occurs, then total welfare can increase following the introduction of a potential entrant, in contrast to the unambiguous welfare reduction found in the symmetric setting. If firms' entry decisions are unobserved before pricing-setting occurs, then the expected price typically decreases or remains unchanged following the introduction of a potential entrant, in contrast to the unambiguous price increase found in the symmetric setting. In both price-setting environments, competition increases following the introduction of potential entrants with sufficiently low entry costs, a finding that is obscured by focusing on the symmetric models.
Author: Charles J. Thomas
Publisher:
ISBN:
Category : Competition
Languages : en
Pages : 21
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Book Description
Author: Charles Jonathan Thomas
Publisher:
ISBN:
Category : Competition
Languages : en
Pages : 21
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Book Description
Author: Federal Trade Federal Trade Commission
Publisher: Createspace Independent Publishing Platform
ISBN: 9781523326587
Category :
Languages : en
Pages : 26
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Book Description
By permitting firms to have different entry costs, I generalize two previously studied models of two-stage entry and pricing amongst Bertrand competitors. I find that the existing results depend critically on the symmetry assumption. For example, if firms' entry decisions are observed before price-setting occurs, then total welfare can increase following the introduction of a potential entrant, in contrast to the unambiguous welfare reduction found in the symmetric setting. If firms' entry decisions are unobserved before pricing-setting occurs, then the expected price typically decreases or remains unchanged following the introduction of a potential entrant, in contrast to the unambiguous price increase found in the symmetric setting. In both price-setting environments, competition increases following the introduction of potential entrants with sufficiently low entry costs, a finding that is obscured by focusing on the symmetric models.
Author: Thomas Demuynck
Publisher:
ISBN:
Category :
Languages : en
Pages : 10
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Book Description
We consider two versions of a Bertrand duopoly with asymmetric costs and homogeneous goods. They differ in whether predatory pricing is allowed. For each version, we derive the Myopic Stable Set in pure strategies as introduced by Demuynck, Herings, Saulle, and Seel (2017). We contrast our prediction to the prediction of Nash Equilibrium in mixed strategies.
Author: Piercarlo Zanchettin
Publisher:
ISBN:
Category : Duopolies
Languages : en
Pages : 32
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Book Description
Author: Johan N. M. Lagerlöf
Publisher:
ISBN:
Category : Competition
Languages : en
Pages : 0
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Book Description
Although naive intuition may indicate the opposite, the existing literature suggests that uncertainty about costs in the homogeneous-good Bertrand model intensifies competition: it lowers price and raises total surplus (but also makes profits go up). Those results, however, are derived under two assumptions that, if relaxed, conceivably could reverse the results. The present paper first shows that the results hold also if drastic innovations are possible. Next, the paper assumes asymmetric cost distributions, a possibility that is empirically highly plausible but which has been neglected in the previous literature. Using numerical methods it is shown that, under this assumption, uncertainty lowers price and raises total surplus even more than with identical distributions. However, if the asymmetry is large enough, industry profits are lower under uncertainty; this is in contrast to the known results and reinforces the notion that uncertainty intensifies competition rather than softens it.
