Citation

Discussion Paper Details

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Full Details

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

Author(s): Jan Boone

Publication Date: April 2002

Keyword(s): bertrand paradox, efficiency offense, joint dominance, mergers and price leadership

Programme Area(s): Industrial Organization

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 offence.

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Bibliographic Reference

Boone, J. 2002. ''Be Nice, Unless it Pays to Fight': A New Theory of Price Determination with Implications for Competition Policy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3342