Abstract
The relation between perfectly competitive and monopolistically competitive equilibria is analysed for a Bertrand-Edgeworth model of a single market in which capacity constrained firms choose prices as strategies. The market always has a Nash equilibrium in pure or mixed strategies. As the number of firms increases, the corresponding equilibria converge in distribution to a perfectly competitive price. This result provides a justification for perfect competition that is based on an explicit account of price formation. However, monopoly prices persist with a positive but vanishing probability. Regularity or well defined inverse demand functions are not required. © 1990 The Review of Economic Studies Limited.
Original language | English (US) |
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Pages (from-to) | 175-204 |
Number of pages | 30 |
Journal | Review of Economic Studies |
Volume | 53 |
Issue number | 2 |
DOIs | |
State | Published - 1986 |