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Price competition with population uncertainty

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  • Ritzberger, Klaus

Abstract

The Bertrand paradox holds that price competition among at least two firms eliminates all profits in equilibrium, when firms have identical constant marginal costs. This assumes that the number of competitors is common knowledge among firms. If firms are uncertain about the number of their competitors, there is no pure strategy equilibrium. But in mixed strategies an equilibrium exists. In this equilibrium it takes a large market to wipe out profits. Thus, with population uncertainty, two are not enough for competition.

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Bibliographic Info

Article provided by Elsevier in its journal Mathematical Social Sciences.

Volume (Year): 58 (2009)
Issue (Month): 2 (September)
Pages: 145-157

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Handle: RePEc:eee:matsoc:v:58:y:2009:i:2:p:145-157

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Web page: http://www.elsevier.com/locate/inca/505565

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Keywords: Bertrand paradox Population uncertainty Price competition;

References

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  1. Simon, Leo K & Zame, William R, 1990. "Discontinuous Games and Endogenous Sharing Rules," Econometrica, Econometric Society, vol. 58(4), pages 861-72, July.
  2. Roger B. Myerson, 1994. "Population Uncertainty and Poisson Games," Discussion Papers 1102, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Milchtaich, Igal, 2004. "Random-player games," Games and Economic Behavior, Elsevier, vol. 47(2), pages 353-388, May.
  4. Spulber, Daniel F, 1995. "Bertrand Competition When Rivals' Costs Are Unknown," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 1-11, March.
  5. Eric Rasmusen, 1996. "Bertrand Competition Under Uncertainty," Industrial Organization 9607002, EconWPA.
  6. Myerson, Roger B., 2000. "Large Poisson Games," Journal of Economic Theory, Elsevier, vol. 94(1), pages 7-45, September.
  7. Hoernig, Steffen H., 2002. "Mixed Bertrand equilibria under decreasing returns to scale: an embarrassment of riches," Economics Letters, Elsevier, vol. 74(3), pages 359-362, February.
  8. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, II: Applications," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 27-41, January.
  9. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 1-26, January.
  10. Thepot, Jacques, 1995. "Bertrand oligopoly with decreasing returns to scale," Journal of Mathematical Economics, Elsevier, vol. 24(7), pages 689-718.
  11. Blume, Andreas, 2003. "Bertrand without fudge," Economics Letters, Elsevier, vol. 78(2), pages 167-168, February.
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Cited by:
  1. Francesco De Sinopoli & Claudia Meroni & Carlos Pimienta, 2014. "Strategic Stability in Poisson Games," Discussion Papers 2014-09, School of Economics, The University of New South Wales.

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