The quantity of labour, the wage rate and the standard system

Abstract

The analysis of the existence of equilibrium in the Bertrand model with homogeneous product is a very long lasting issue. The standard result, known as the Bertrand paradox that is the duopoly equilibrium with linear cost-symmetric firms is the perfect competition equilibrium and with linear cost-asymmetric firms is the monopoly has been investigated by an extensive literature. This chapter examines the issue of strategic entry by assuming that only one downstream firm is already in the market, the incumbent, and that a firm, the entrant, has to decide whether to enter the market. A particular case is given by the homogenous good capacity-constrained Bertrand-Edgeworth model, where the firms may serve less than the demand they are facing. The Strategic entry is an old issue in oligopoly theory, since the seminal contributions by Joe Bain, Sylos Labini, Modigliani and Dixit.