Bertrand competition with intertemporal demand
- Bertrand competition with intertemporal demand
- Dutta, Prajit Kumar
Weibull, Jorgen W.
- Persistent URL:
- Department of Economics Discussion Papers
- Part Number:
- March 2002
- Department of Economics, Columbia University
- Publisher Location:
- New York
- 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. Such intertemporal substitution affects the profit to a deviating firm. 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 when they are more or less patient than the firms. It turns out that collusion against patient and forwardlooking consumers is easier to sustain than collusion in the text-book model.
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- Suggested Citation:
- Prajit Kumar Dutta, Alexander Matros, Jorgen W. Weibull, 2002, Bertrand competition with intertemporal demand, Columbia University Academic Commons, https://doi.org/10.7916/D8RF666S.