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BERTRAND COMPETITION WITH ASYMMETRIC MARGINAL COSTS
Author(s) -
Dugar Subhasish,
Mitra Arnab
Publication year - 2016
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12328
Subject(s) - economics , bertrand competition , marginal cost , duopoly , microeconomics , bertrand paradox (economics) , intuition , perfect competition , marginal utility , marginal profit , econometrics , competition (biology) , mathematical economics , oligopoly , cournot competition , ecology , biology , philosophy , epistemology
This article tests the prediction of three discrete asymmetric duopoly price competition games in the laboratory. The games differ from each other in terms of the size of the cost asymmetry that induces a systematic variation in the difference between the firms' marginal costs. While the standard theory requires the low‐cost firm to set a price just equal to the high‐cost firm's marginal cost, which is identical across all three games, and win the entire market, intuition suggests that market price may increase with a decrease in the absolute difference between the two marginal costs. We develop a quantal response equilibrium model to test our competing conjecture. ( JEL L11, L12, C91, D43)