Ex-post price stability with convex costs

Byford, M 2018, 'Ex-post price stability with convex costs', International Journal of Game Theory, vol. 47, no. 4, pp. 1065-1085.


Document type: Journal Article
Collection: Journal Articles

Title Ex-post price stability with convex costs
Author(s) Byford, M
Year 2018
Journal name International Journal of Game Theory
Volume number 47
Issue number 4
Start page 1065
End page 1085
Total pages 21
Publisher Springer
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.
Subject Industry Economics and Industrial Organisation
Microeconomic Theory
Keyword(s) Bertrand competition
Convex costs
Core convergence
Cournot competition
Double-marginalisation
Non-transferable utility coalitional games
DOI - identifier 10.1007/s00182-017-0599-1
Copyright notice © Springer-Verlag GmbH Germany 2017
ISSN 0020-7276
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