Work

Bertrand competition and captive customers

Year: 2025

Type: article

Abstract: We study a Bertrand oligopoly with asymmetric costs in which each seller has some “captive” buyers. In the limit as captive buyers vanish, the lowest-cost firm sells to all buyers at a price equal to the second-lowest marginal cost. However, the closest competing price arises from non-degenerate mixed strategies, firms play exclusively undominated strategies, and with positive probability all but one firm sets the monopoly price. • A vanishing small set of captive buyers selects an equilibrium of classic Bertrand oligopoly. • The lowest-cost firm sells to all buyers at a price equal to the second-lowest marginal cost. • The closest competing price arises from non-degenerate mixed strategies. • Firms play exclusively undominated strategies. • With positive probability all but one firm sets the monopoly price.

Source: Economics Letters

DOI: 10.1016/j.econlet.2025.112710

Authors: David P. Myatt, David Ronayne

Institutions: London Business School, European School of Management and Technology

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: $3,030

Funder: Deutsche Forschungsgemeinschaft