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The B.E. Journal of Theoretical Economics

Editor-in-Chief: Schipper, Burkhard

Ed. by Fong, Yuk-fai / Peeters, Ronald / Puzzello , Daniela / Rivas, Javier / Wenzelburger, Jan

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Asymmetric Bertrand-Edgeworth Oligopoly and Mergers

Daisuke Hirata
Published Online: 2009-07-10 | DOI: https://doi.org/10.2202/1935-1704.1500

This paper investigates mixed strategy equilibria in a capacity-constrained price competition among three firms. It is shown that the equilibria in an asymmetric oligopoly are substantially different from those in a duopoly and symmetric oligopoly. In an asymmetric triopoly, it is possible that (i) a continuum of equilibria exists and that (ii) the lowest price of the smallest firm is higher than that of the others and the smallest firm earns more than the max-min profit in undominated strategies. In particular, the second finding sheds light on a new pricing incentive in Bertrand competitions. As an application, the equilibrium characterizations give rise to a new class of merger paradoxes.

Keywords: price competition; mixed strategy equilibrium; capacity constraint; homogeneous good; merger paradox

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Published Online: 2009-07-10

Citation Information: The B.E. Journal of Theoretical Economics, ISSN (Online) 1935-1704, DOI: https://doi.org/10.2202/1935-1704.1500.

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