The dynamics of Bertrand price competition with cost-reducing investments

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dc.contributor.authorIskhakov, Fedor
dc.contributor.authorRust, John
dc.contributor.authorSchjerning, Bertel
dc.date.accessioned2020-07-26T23:41:16Z
dc.date.available2020-07-26T23:41:16Z
dc.date.issued2018-08-27
dc.date.updated2020-04-19T08:26:36Z
dc.description.abstractWe 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.en_AU
dc.description.sponsorshipThe authors would like to acknowledge the funding received from the Danish Council for Independent Research and Innovation Fund Denmark. Fedor Iskhakov gratefully acknowledges the support from the Australian Research Council projects CE110001029 and FL110100247 as well as from Frisch Centre project 1307 financed by the Ministry of Labor, Norwayen_AU
dc.format.mimetypeapplication/pdfen_AU
dc.identifier.issn0020-6598en_AU
dc.identifier.urihttp://hdl.handle.net/1885/206596
dc.language.isoen_AUen_AU
dc.provenancehttp://v2.sherpa.ac.uk/id/publication/7733..."Author accepted manuscript can be made open access on institutional repository after 24 month embargo" from SHERPA/RoMEO site (as at 27/7/20).en_AU
dc.publisherBlackwell Publishing Ltden_AU
dc.relationhttp://purl.org/au-research/grants/arc/FL110100247en_AU
dc.relationhttp://purl.org/au-research/grants/arc/CE1101029en_AU
dc.rights© 2018 Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Associationen_AU
dc.sourceInternational Economic Reviewen_AU
dc.subjectduopolyen_AU
dc.subjectBertrand-Nash price competitionen_AU
dc.subjectBertrand investment paradoxen_AU
dc.subjectleapfroggingen_AU
dc.subjectcostreducing investmentsen_AU
dc.subjecttechnological improvementen_AU
dc.subjectdynamic models of competitionen_AU
dc.subjectMarkov-perfect equilibriumen_AU
dc.subjecttacit collusionen_AU
dc.subjectprice warsen_AU
dc.subjectcoordination and anti-coordination gamesen_AU
dc.subjectstrategic preemptionen_AU
dc.titleThe dynamics of Bertrand price competition with cost-reducing investmentsen_AU
dc.typeJournal articleen_AU
dcterms.accessRightsOpen Accessen_AU
dcterms.dateAccepted2018-06-06
local.bibliographicCitation.issue4en_AU
local.bibliographicCitation.lastpage1731en_AU
local.bibliographicCitation.startpage1681en_AU
local.contributor.affiliationIskhakov, Fedor, College of Business and Economics, ANUen_AU
local.contributor.affiliationRust, John, Georgetown Universityen_AU
local.contributor.affiliationSchjerning, Bertel, University of Copenhagenen_AU
local.contributor.authoremailu1027580@anu.edu.auen_AU
local.contributor.authoruidIskhakov, Fedor, u1027580en_AU
local.description.notesImported from ARIESen_AU
local.identifier.absfor140199 - Economic Theory not elsewhere classifieden_AU
local.identifier.absseo910299 - Microeconomics not elsewhere classifieden_AU
local.identifier.ariespublicationu3102795xPUB308en_AU
local.identifier.citationvolume59en_AU
local.identifier.doi10.1111/iere.12317en_AU
local.identifier.scopusID2-s2.0-85052803273
local.identifier.uidSubmittedByu3102795en_AU
local.publisher.urlhttps://onlinelibrary.wiley.com/en_AU
local.type.statusAccepted Versionen_AU

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