Why Do Firms Compete Under Bertrand Competition?

Improved Essays
1) A Study of Cartel Stability: the JEC,
Robert H. Porter, 1880-1886

This paper examines the model proposed by Green and Porter, which is a model of dynamic price competition under imperfect monitoring, i.e. firms encounter the problem of detecting and deterring deviation from the agreement. Firms can only observe the market price, but do not know the actual production level of another firm. Unexpected fall in prices may account for deviation from the colussive output or bad demand shock. So firms can deter deviation only by threatening to set Cournout quantities, which are above monopoly quantities, during a period of a price below agreed one. The equilibrium of the model is that firms want to maximise their profits at the collusive quantities,
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Raymond Deneckere and Carl Davidson.
This paper examines why firms want to collude while producing differentiated products under price competition.
The size of the merger and associated size of profits are positively related.
The desire to merge under Bertrand competition depends on the interaction between two main forces: capturing negative externality and extracting a spiral of responses from other firms. The first one is always beneficial irrespective of whether firms compete in prices or quantities, so collusion is more likely to occur in this setting. The benefit of the latter one depends on whether firms compete in prices or quantities if firms compete in prices this response is beneficial since the reaction functions slope upwards if firms compete in quantities the response of firms in the other industry is going to hurt the coalition partners. So mergers are less likely to occur in the quantity-setting with close substitutes. The paper concludes that it is always mutually beneficial to collude under price-setting, and profit increases with the size of the merger.

5)How do incumbents respond to the threat of entry? Evidence from the major

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