We derive a measure of firm speed of price adjustment that is directly inversely related to market power and compare this to the measure derived by Martin (1993). However, both measures are incorrect when firms have non-zero price conjectural variations and treat competing price levels as exogenous. This is because Taylor series expansions of the demand function implicitly assume that firms inf...

We revisit Fujiwara’s (2008) di¤erential duopoly game to show that the degenerate nonlinear feedback identi…ed by the tangency point with the stationary state line is indeed unstable, given the dynamics of the natural resource exploited by …rms. To do so, we fully characterise the continuum of nonlinear feedback solution via Rowat’s (2007) method, characterising the in…nitely many stable nonlin...

This entry shows why self-interested agents manage to cooperate in a long-term relationship. When agents interact only once, they often have an incentive to deviate from cooperation. In a repeated interaction, however, any mutually beneficial outcome can be sustained in an equilibrium. This fact, known as the folk theorem, is explained under various information structures. This entry also compa...

This paper studies a model of product variety with flexible manufacturers when, contrary to prior work, atomistic entry occurs prior to horizontal integration. In this model, more lax antitrust laws that allow for fewer and more concentrated merged firms lead to a greater extent of excess entry. Optimal policy permits no horizontal mergers when demand is perfectly inelastic, but may permit some...

This paper studies effects of price floors in a simple model of vertical product differentiation. We find that even non-binding price floors can increase quality on the market, if the cost of quality is sufficiently low. Where a binding price floor does not change the equilibrium quality, it makes consumers worse off. There is also a possibility of overinvestment into quality as a result of the...

We introduce product differentiation in the model of price competition with strictly convex costs in which firms have to supply all the forthcoming demand. We find that although a continuum of equilibria exists in a homogeneous product market, the competitive price equilibrium is the only robust one. Specifically, as long as the equilibrium correspondence is nonempty, the equilibrium price conv...

We show that there is a unique correlated equilibrium, identical to the unique Nash equilibrium, in the classic Bertrand oligopoly model with homogenous goods and identical marginal costs. This provides a theoretical underpinning for the socalled “Bertrand paradox” as well as its most general formulation to date. Our proof generalizes to asymmetric marginal costs and arbitrarily many players in...

A model with two types of consumers, shoppers and captives, is constructed that leads to an equilibrium price dispersion. Shoppers may hold inventories of the good; the level of consumer inventories leads to state-dependent price dispersions. It is shown that prices and quantities display negative serial correlation. The model is tested using grocery store data, which display the predicted corr...

This article studies the design of optimal mechanisms to regulate entry in natural oligopoly markets, assuming the regulator is unable to control the behavior of firms once they are in the market. We adapt the Clarke–Groves mechanism, characterize the optimal mechanism that maximizes the weighted sum of expected social surplus and expected tax revenue, and show that thesemechanisms generally av...

It is well established in vertical product differentiation models that the high-quality firm reaps a larger profit in a two-stage quality-price game as long as the cost of quality improvement is zero or is borne as fixed cost in the first stage quality choice. This note shows that the highquality advantage may fail to hold if there is variable cost of production that is dependent on quality. JE...