The Dynamics of Bertrand Price Competition with Cost-Reducing Investments
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The Dynamics of Bertrand Price Competition with Cost-Reducing Investments. / Iskhakov, Fedor; Rust, John; Schjerning, Bertel.
I: International Economic Review, Bind 59, Nr. 4, 13.11.2018, s. 1681-1731.Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
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TY - JOUR
T1 - The Dynamics of Bertrand Price Competition with Cost-Reducing Investments
AU - Iskhakov, Fedor
AU - Rust, John
AU - Schjerning, Bertel
N1 - Lead Article
PY - 2018/11/13
Y1 - 2018/11/13
N2 - We extend the classic Bertrand duopoly model of price competition to a dynamic setting where competing duopolists invest in a stochastically improving production technology to “leapfrog” their rival and attain temporary low cost leadership. We find a huge multiplicity of Markov perfect equilibria (MPE) and show that when firms move simultaneously the set of all MPE payoffs is a triangle that includes monopoly payoffs and a symmetric zero mixed strategy payoff. When firms move asynchronously, the set of MPE payoffs is strictly within this triangle, but there still is a vast multiplicity of MPE, most of which involve leapfrogging.
AB - We extend the classic Bertrand duopoly model of price competition to a dynamic setting where competing duopolists invest in a stochastically improving production technology to “leapfrog” their rival and attain temporary low cost leadership. We find a huge multiplicity of Markov perfect equilibria (MPE) and show that when firms move simultaneously the set of all MPE payoffs is a triangle that includes monopoly payoffs and a symmetric zero mixed strategy payoff. When firms move asynchronously, the set of MPE payoffs is strictly within this triangle, but there still is a vast multiplicity of MPE, most of which involve leapfrogging.
U2 - 10.1111/iere.12317
DO - 10.1111/iere.12317
M3 - Journal article
VL - 59
SP - 1681
EP - 1731
JO - International Economic Review
JF - International Economic Review
SN - 0020-6598
IS - 4
ER -
ID: 147222266