Bertrand Competition Under Uncertainty
Consider a Bertrand model in which each firm may be inactive with a known probability, so the number of active firms is uncertain. This activity level can be endogenized in several ways ---whether to incur a fixed cost of activity, for example, or what level of output to choose. Our model has a mixed-strategy equilibrium, in which industry profits are positive and decline with the number of firms, the same features which make the Cournot model attractive. Unlike in a Cournot model with similar incomplete information, Bertrand profits always increase in the probability other firms are inactive. Profits decline more sharply than in the Cournot model, and the pattern is similar to that found empirically by Bresnahan and Reiss (1991).
|Date of creation:||Jun 2001|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.cirje.e.u-tokyo.ac.jp/index.html
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Levitan, Richard & Shubik, Martin, 1972.
"Price Duopoly and Capacity Constraints,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(1), pages 111-22, February.
- Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
- Warner, Elizabeth J & Barsky, Robert B, 1995. "The Timing and Magnitude of Retail Store Markdowns: Evidence from Weekends and Holidays," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 321-52, May.
- Gaudet, G. & Salant, S.W., 1988.
"Uniqueness Of Cournot Equilibrium: New Results From Old Methods,"
Cahiers de recherche
8818, Université Laval - Département d'économique.
- Gaudet, Gerard & Salant, Stephen W, 1991. "Uniqueness of Cournot Equilibrium: New Results from Old Methods," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 399-404, April.
- Gaudet, G. & Salant, S., 1988. "Uniqueness Of Cournot Equilibrium: New Results From Old Methods," Papers 89-10, Michigan - Center for Research on Economic & Social Theory.
- David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
- Bresnahan, Timothy F & Reiss, Peter C, 1991.
"Entry and Competition in Concentrated Markets,"
Journal of Political Economy,
University of Chicago Press, vol. 99(5), pages 977-1009, October.
- Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
- Janssen, Maarten C. W. & van Reeven, Peran, 1998. "Market Prices and Illegal Practices," International Review of Law and Economics, Elsevier, vol. 18(1), pages 51-60, March.
- Steven Salop & Joseph Stiglitz, 1977.
"Bargains and ripoffs: a model of monopolistically competitive price dispersion,"
Special Studies Papers
94, Board of Governors of the Federal Reserve System (U.S.).
- Salop, Steven & Stiglitz, Joseph E, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 493-510, October.
- Elmar Wolfstetter & Walter Elberfeld, 1997.
"A Dynamic Model of Bertrand Competition with Entry,"
- Elberfeld, Walter & Wolfstetter, Elmar, 1999. "A dynamic model of Bertrand competition with entry," International Journal of Industrial Organization, Elsevier, vol. 17(4), pages 513-525, May.
- 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.
- Spulber, Daniel F, 1995. "Bertrand Competition When Rivals' Costs Are Unknown," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 1-11, March.
- McAfee, R. Preston & McMillan, John, 1987. "Auctions with a stochastic number of bidders," Journal of Economic Theory, Elsevier, vol. 43(1), pages 1-19, October.
When requesting a correction, please mention this item's handle: RePEc:tky:fseres:2001cf117. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CIRJE administrative office)
If references are entirely missing, you can add them using this form.