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Bertrand competition with intertemporal demand

Dutta, P.; Matros, A.; Normann, H.-T.; (2002) Bertrand competition with intertemporal demand. (ELSE Working Papers 45). ESRC Centre for Economic Learning and Social Evolution: London, UK. Green open access

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Abstract

In the text-book model of dynamic Bertrand competition, competing firms meet the same demand function every period. This is not a satisfactory model of the demand side if consumers can make intertemporal substitution between periods. Each period then leaves some residual demand to future periods, and consumers who observe price under-cutting may correctly anticipate an ensuing price war and therefore postpone their purchases. Accordingly, the interaction between the firms no longer constitutes a repeated game, and hence falls outside the domain of the usual Folk theorems. We analyze collusive pricing in such situations, and study cases when consumers have perfect and imperfect foresight and varying degrees of patience. It turns out that collusion against patient and forward-looking consumers is easier to sustain than collusion in the text-book model.

Type: Working / discussion paper
Title: Bertrand competition with intertemporal demand
Open access status: An open access version is available from UCL Discovery
Publisher version: http://else.econ.ucl.ac.uk/newweb/papers.php#2002
Language: English
Keywords: JEL classification: C73, D43, D91, D92, L13. Bertrand competition, Coase conjecture, dynamic oligopoly, stochastic games
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/14649
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