Bertrand-edgeworth oligopoly in large markets

Beth Allen, Martin Hellwig

Research output: Contribution to journalArticle

84 Scopus citations

Abstract

The relation between perfectly competitive and monopolistically competitive equilibria is analysed for a Bertrand-Edgeworth model of a single market in which capacity constrained firms choose prices as strategies. The market always has a Nash equilibrium in pure or mixed strategies. As the number of firms increases, the corresponding equilibria converge in distribution to a perfectly competitive price. This result provides a justification for perfect competition that is based on an explicit account of price formation. However, monopoly prices persist with a positive but vanishing probability. Regularity or well defined inverse demand functions are not required. © 1990 The Review of Economic Studies Limited.

Original languageEnglish (US)
Pages (from-to)175-204
Number of pages30
JournalReview of Economic Studies
Volume53
Issue number2
DOIs
StatePublished - 1986

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