BERTRAND EQUILIBRIUM IN A DIFFERENTIATED DUOPOLY

This paper studies the stability of price competition in a horizontally differentiated duopoly. The firms' demand is derived from a distribution of consumer preferences. This description of the consumer sector is applicable to a large class of differentiated commodity markets, including spatial competition models. We show that there is a (pure) price setting equilibrium when consumer tastes are sufficiently dispersed. Further conditions on the dispersedness of preferences guarantee uniqueness of the equilibrium. In addition, we examine the relation between consumer preferences and the competitiveness and efficiency of the equilibrium outcome.