A New Approach to Modeling Bertrand Duopoly

Bertrand oligopoly needs global demand functions which apply to close substitutes. This is a problem, because economic theory never supplied anything but local definitions for substitutes. Lancaster’s “new theory of demand” is therefore invoked to supply one. In its format one can also quantify closeness of substitutes and incorporate optimisation of design. The present study focuses the pure price dynamics for Bertrand oligopoly when the design of the competing products is given, though quantified through Lancaster’s approach. Resulting is some complex dynamics, including high periodicity and chaos.