Bertrand Price Competition in a Social Environment

Abstract

In this paper the behavior of producers in a social environment is considered from a more sociological point of view than is usually done in economics. The producers play Bertrand price competition against each other and change the action they played based upon the outcome of the game, according to a metastrategy. This metastrategy is a sociological behavioral rule, based on thenotion of fairness or aspiration level. In this way an evolutionary process is specified.The main result is that the emergence of cooperative behavior can be explained by this evolutionary process which incorporates behavioral rules. The model also shows that occasionally price wars may occur