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Bertrand Competition When Rivals' Costs Are Unknown

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Author Info
Spulber, Daniel F

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Abstract

The conclusions of the Bertrand model of competition are substantially altered by the presence of asymmetric information about rivals' costs. Asymmetric information eliminates the discontinuity in the Bertrand model and significantly alters the properties of the market equilibrium. In the Bertrand-Nash equilibrium when rivals' costs are unknown, firms price above marginal cost and have positive expected profit. The analysis is extended to franchise competition. The market equilibrium is sensitive to market structure and yields incentives for entry. Copyright 1995 by Blackwell Publishing Ltd.

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Industrial Economics.

Volume (Year): 43 (1995)
Issue (Month): 1 (March)
Pages: 1-11
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Handle: RePEc:bla:jindec:v:43:y:1995:i:1:p:1-11

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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  1. Kyle Bagwell, 2004. "Collusion and Price Rigidity," Theory workshop papers 658612000000000081, UCLA Department of Economics. [Downloadable!]
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  2. Alejandro Saporiti & German Coloma, 2009. "Bertrand's price competition in markets with fixed costs," RCER Working Papers 549, University of Rochester - Center for Economic Research (RCER). [Downloadable!]
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  3. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Persistent Price Dispersion in Online Markets," Working Papers 2006-12, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
  4. Michael R. Baye & John Morgan, 2004. "Price Dispersion in the Lab and on the Internet: Theory and Evidence," Working Papers 2004-02, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
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  5. Michele Moretto & Cesare Dosi, 2007. "Concession Bidding Rules and Investment Time Flexibility," Working Papers 2007.3, Fondazione Eni Enrico Mattei. [Downloadable!]
  6. Eric Rasmusen, 1996. "Bertrand Competition Under Uncertainty," Industrial Organization 9607002, EconWPA. [Downloadable!]
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  7. Michael R. Baye & J. Rupert J. Gatti & Paul Kattuman & John Morgan, 2006. "Clicks, Discontinuities, and Firm Demand Online," Working Papers 2006-21, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
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  8. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Temporal Price Dispersion: Evidence from an Online Consumer Electronics Market," Working Papers 2004-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
  9. Klaus Abbink & Jordi Brandts, 2002. "Price competition under cost uncertainty: A laboratory analysis," UFAE and IAE Working Papers 550.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
  10. Dosi, Cesare & Moretto, Michele, 2006. "Concession Bidding Rules and Investment Time Flexibility," Conference Papers 6630, University of Minnesota, Center for International Food and Agricultural Policy. [Downloadable!]
  11. Maarten C.W. Janssen & Santanu Roy, 2007. "Signaling Quality Through Prices in an Oligopoly," Departmental Working Papers 0709, Southern Methodist University, Department of Economics, revised Nov 2008. [Downloadable!]
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  12. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Price Dispersion in the Small and in the Large: Evidence from an Internet Price Comparison Site," Working Papers 2004-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
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  13. Susan Athey & Kyle Bagwell, 2004. "Collusion with Persistent Cost Shocks," Levine's Bibliography 122247000000000334, UCLA Department of Economics. [Downloadable!]
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