The Dynamics of Bertrand Price Competition with Cost-Reducing Investments
Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
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.
|Tidsskrift||International Economic Review|
|Status||Udgivet - 13 nov. 2018|