TY - CHAP

T1 - Bertrand meets ford

T2 - Benefits and losses

AU - Sidorov, Alexander

AU - Parenti, Mathieu

AU - Thisse, Jacques Francois

N1 - Publisher Copyright: © Springer International Publishing AG, part of Springer Nature 2018.

PY - 2018/1/1

Y1 - 2018/1/1

N2 - 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).

AB - 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).

UR - http://www.scopus.com/inward/record.url?scp=85052397093&partnerID=8YFLogxK

U2 - 10.1007/978-3-319-92988-0_15

DO - 10.1007/978-3-319-92988-0_15

M3 - Chapter

AN - SCOPUS:85052397093

T3 - Static and Dynamic Game Theory: Foundations and Applications

SP - 251

EP - 268

BT - Static and Dynamic Game Theory

PB - Birkhauser Verlag Basel

ER -