Price competition with the attraction demand model: Existence of unique equilibrium and its stability

Abstract

We show the existence of Nash equilibria in a Bertrand oligopoly price competition game using a possibly asymmetric attraction demand model with convex costs under mild assumptions. We show that the equilibrium is unique and globally stable. To our knowledge, this is the first paper to show the existence of a unique equilibrium with both nonlinear demand and nonlinear costs. In addition, we guarantee the linear convergence rate of tatonnement. We illustrate the applicability of this approach with several examples arising from operational considerations that are often ignored in the economics literature.