Ex-post price stability with convex costs |
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Authors: | Martin C Byford |
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Institution: | 1.School of Economics, Finance and Marketing,RMIT University,Melbourne,Australia |
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Abstract: | Homogeneous goods markets with convex costs, do not generally possess Bertrand-Nash equilibria in pure strategies. In order to identify ex-post stable prices in such markets, the set of outcomes feasible in Bertrand competition are analysed as a non-transferable utility coalitional game. The market-clearing price is shown to always implement a strict-core outcome. Moreover, where at least two sellers compete, the strict-core converges to only admit market-clearing outcomes. The analysis has implications for a number of prominent models of oligopoly competition. When firms engage in capacity pre-commitment, the set of ex-post stable prices converges to the corresponding Cournot prices. This result holds for arbitrary capacity choices and a general class of rationing rules. Conversely, double-marginalisation is never ex-post stable. |
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