Abstract
This paper proves that the u-shaped average cost model derives contradictory results. It also shows that the two demand curves for an oligopolistic firm have the same intercept, to disprove the traditional kinked demand model. The correct approach to describe price war is to follow Bertrand. This paper makes use of the theory developed by Hotelling (1929) and others to model price war and to derive a stable Bertrand equilibrium.
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