A nonnegative extension of the affine demand function and equilibrium analysis for multiproduct price competition

Authors:
Amr Farahat;Georgia Perakis
Affiliations:
Johnson Graduate School of Management, Cornell University, Ithaca, NY 14853, USA;Sloan School of Management, M.I.T., Cambridge, MA 02139, USA
Venue:
Operations Research Letters
Year:
2010

Citing 8
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Abstract

We derive a nonnegative extension of the affine demand function for differentiated substitute products from the optimization problem facing a representative consumer whose utility function is quadratic. We show that the extended demand function reduces to a linear program. The linear program has a simple intuitive interpretation in terms of a shifted price vector. We prove the existence and uniqueness of the Bertrand equilibrium in oligopolies consisting of multiproduct firms under the proposed demand function. The equilibrium, available in closed form, coincides with that obtained when allowing negative demands.