'Be Nice Unless it Pays to Fight': A New Theory of Price Determination with Implications for Competition Policy

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Abstract

This paper introduces a simple extensive form pricing game.The Bertrand outcome is a Nash equilibrium outcome in this game, but it is not necessarily subgame perfect.The subgame perfect equilibrium outcome features the following comparative static properties.The more similar firms are, the higher the equilibrium price.Further, a new firm that enters the industry or an existing firm that becomes more efficient can raise the equilibrium price.The subgame perfect equilibrium is used to formalize price leadership, joint dominance and efficiency o¤ence.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages50
Volume2002-23
Publication statusPublished - 2002

Publication series

NameCentER Discussion Paper
Volume2002-23

Keywords

  • game theory
  • mergers
  • Nash equilibrium
  • price competition

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