Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/79679
Authors: 
Geromichalos, Athanasios
Year of Publication: 
2012
Series/Report no.: 
Working Papers, University of California, Department of Economics 12-21
Abstract: 
I study a directed search model of oligopolistic competition, extended to incorporate general capacity constraints, congestion effects, and pricing based on ex-post realized demand. I show that as long as any one of these ingredients is present, the Bertrand paradox will fail to hold. Hence, I argue that, despite the emphasis that has been placed by the literature on sellers' capacity constraints as a resolution to the paradox, the existence of such constraints is only a subcase of a general class of environments where the paradox fails. More precisely, Bertrand's paradox will not arise whenever the buyers' expected utility from visiting a specific seller is decreasing in that seller's realized demand.
Subjects: 
directed search
Bertrand paradox
capacity constraints
congestion effects
state-contingent pricing
JEL: 
C78
D43
L13
Document Type: 
Working Paper

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