Bertrand price competition with differentiated commodities (Q1095777)

We develop a general equilibrium differential commodity version of Bertrand price competition. We study two, related market games in which buyers as well as sellers announce both quantities and prices. In the first game, buyers' strategies are artificially restricted. The Nash allocations of this game will be nearly competitive, provided that the commodities supplied by sellers are sufficiently similar. In the second game, the restriction on buyers' strategies is relaxed and a stronger solution criterion, called local perfection, is invoked. The locally perfect equilibria of the unrestricted game coincide with the Nash equilibria of the restricted game.