The possibility of mixed-strategy equilibria with constant-returns-to-scale technology under Bertrand competition

Todd R. Kaplan, David Wettstein

Research output: Contribution to journalArticlepeer-review

Abstract

Abstract. We analyze the Nash equilibria of a standard Bertrand model. We show that in addition to the marginal-cost pricing equilibrium there is a possibility for mixed-strategy equilibria yielding positive profit levels. We characterize these equilibria and find that having unbounded revenues is the necessary and sufficient condition for their existence. Hence, we demonstrate that under realistic assumptions the only equilibrium is marginal-cost pricing.

Original languageEnglish
Pages (from-to)65-71
Number of pages7
JournalSpanish Economic Review
Volume2
Issue number1
DOIs
StatePublished - 1 Apr 2000
Externally publishedYes

Bibliographical note

Funding Information:
We wish to thank two referees and a co-editor for valuable suggestions that have significantly improved this paper. We also gratefully acknowledge the support from the Kreitman Foundation and the Monaster Center for Economic Research. This paper is a revised version of Kaplan and Wettstein [1997]. 1 See Shapiro (1989) for an exellent exposition of the two competing models.

Publisher Copyright:
© 2000, Springer-Verlag Berlin Heidelberg.

Keywords

  • JEL classification: C72, L13
  • Key words:Bertrand, price competition

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (all)

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