von Stackelberg’s equilibria for Bertrand‐Edgeworth duopoly with buyouts

Solves von Stackelberg equilibria in a Bertrand‐Edgeworth duopoly game. Shows that, initially, the environment is characterized by efficient rationing and capacity constraints. Since interest lies in sustaining monopoly outcomes from non‐co‐operative behaviour, introduces the buyout option, where rivals can absorb one another’s output before any consumer. Reveals that the outcomes change drastically in that players together are able to reach the monopoly profits.