[UTMD-088] Bertrand Menu Competition (by Fuhito Kojima, Bobak Pakzad-Hurson)

Fuhito Kojima, Bobak Pakzad-Hurson

We study a variation of the price competition model a la Bertrand, in which firms must offer menus of contracts that obey monotonicity constraints, e.g., wages that rise with worker productivity to comport with equal pay legislation. While such constraints limit firms’ ability to undercut their competitors, we show that Bertrand’s classic result still holds: competition drives firm profits to zero and leads to efficient allocations without rationing. Our findings suggest that Bertrand’s logic extends to a broader variety of markets, including labor and product markets that are subject to real-world constraints on pricing across workers and products.