Discussion Papers in Economics

Planning Unit, Indian Statistical Institute, Delhi

#04-13:

Bertrand-Edgeworth duopoly with linear costs: A tale of two paradoxes.
Prabal Roy Chowdhury

Abstract

Consider a Bertrand-Edgeworth duopoly with linear cost functions. If the firms produce to stock then no Nash equilibrium in pure strategies exists. If, however, the firms produce to order then all subgame perfect Nash equilibria involve the firms charging a price equal to marginal cost.

Download Paper