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

51 Pages Posted: 30 May 2002

See all articles by Jan Boone

Jan Boone

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); TILEC

Date Written: April 2002

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.

Keywords: Bertrand paradox, price leadership, mergers, joint dominance, efficiency offense

JEL Classification: D43, L11, L41

Suggested Citation

Boone, Jan, 'Be Nice, Unless it Pays to Fight': A New Theory of Price Determination with Implications for Competition Policy (April 2002). Available at SSRN: https://ssrn.com/abstract=314575

Jan Boone (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2399 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

TILEC ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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