Bertrand meets ford: Benefits and losses

Alexander Sidorov, Mathieu Parenti, Jacques Francois Thisse

Research output: Chapter in Book/Report/Conference proceedingChapterResearchpeer-review

2 Citations (Scopus)

Abstract

The paper carries out the detailed comparison of two types of imperfect competition in a general equilibrium model. The price-taking Bertrand competition assumes the myopic income-taking behavior of firms, another type of behavior, price competition under a Ford effect, implies that the firms’ strategic choice takes into account their impact to consumers’ income. Our findings suggest that firms under the Ford effect gather more market power (measured by Lerner index), than “myopic” firms, which is agreed with the folk wisdom “Knowledge is power.” Another folk wisdom implies that increasing of the firms’ market power leads to diminishing in consumers’ well-being (measured by indirect utility.) We show that in general this is not true. We also obtain the sufficient conditions on the representative consumer preference providing the “intuitive” behavior of the indirect utility and show that this condition satisfy the classes of utility functions, which are commonly used as examples (e.g., CES, CARA and HARA).

Original languageEnglish
Title of host publicationStatic and Dynamic Game Theory
Subtitle of host publicationFoundations and Applications
PublisherBirkhauser Verlag Basel
Pages251-268
Number of pages18
DOIs
Publication statusPublished - 1 Jan 2018

Publication series

NameStatic and Dynamic Game Theory: Foundations and Applications
ISSN (Print)2363-8516
ISSN (Electronic)2363-8524

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