Discussion Paper

No. 2014-7 | February 11, 2014
Relative Profit Maximization and Bertrand Equilibrium with Convex Cost Functions

Abstract

The authors study pure strategy Bertrand equilibria in a duopoly in which two firms produce a homogeneous good with convex cost functions, and they seek to maximize the weighted sum of their absolute and relative profits. They show that there exists a range of the equilibrium price in duopolistic equilibria. This range of the equilibrium price is narrower and lower than the range of the equilibrium price in duopolistic equilibria under pure absolute profit maximization, and the larger the weight on the relative profit, the narrower and lower the range of the equilibrium price. In this sense relative profit maximization is more aggressive than absolute profit maximization.

JEL Classification

D43 L13

Cite As

Atsuhiro Satoh and Yasuhito Tanaka (2014). Relative Profit Maximization and Bertrand Equilibrium with Convex Cost Functions. Economics Discussion Papers, No 2014-7, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2014-7

Assessment



Comments and Questions


Anonymous - Referee Report 1
March 18, 2014 - 08:17

see attached file


Anonymous - Referee Report 2
March 24, 2014 - 09:52

see attached file


Yasuhito Tanaka - Reply to Referee Report 1 and Referee Report 2
May 21, 2014 - 09:13

see attached file


Anonymous - Referee Report 3
April 02, 2014 - 08:39

see attached file


Yasuhito Tanaka - Reply to Referee Report 3
May 21, 2014 - 09:14

see attached file