Work

Equilibrium existence in price-quantity games: a sunk cost paradox

Year: 2025

Type: article

Abstract: Nonexistence of a pure-strategy Nash equilibrium is a notorious problem in price-quantity games. What drives this problem is the presence of spillover demand, i.e. , demand coming from competitors’ unserved customers. We argue that such demand spillovers may stem from a strong implicit assumption that costs associated with obtaining a product are sunk and do not affect consumers’ future payoffs. We relax this assumption by considering a more general class of cost functions. This is shown to admit a pure-strategy equilibrium that coincides with the Bertrand price equilibrium.

Source: International Journal of Game Theory

DOI: 10.1007/s00182-025-00955-1

Authors: Iwan Bos, Dries Vermeulen, Niloufar Yousefimanesh

Institution: Maastricht University

Language: English

Topic: Merger and Competition Analysis

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,190

OpenAlex ID: W4413910468