A Dynamic Model of Bertrand Competition with Entry
This paper analyzes a simple, repeated game of simultaneous entry and pricing. We report a surprising property of the symmetric equilibrium solution: If the number of potential competitors is increased above two, the market breaks down with higher probability, and the competitive outcome becomes less likely. More potential competition lowers welfare - another Bertrand paradox. The model can also be applied to auctions to explore whether a revenue maximizing auctioneer should restrict the number of bidders if bidder participation is costly.
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- 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.
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" Auctions: An Introduction,"
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Wiley Blackwell, vol. 10(4), pages 367-420, December.
- Roger Sherman & Thomas D. Willett, 1967. "Potential Entrants Discourage Entry," Journal of Political Economy, University of Chicago Press, vol. 75, pages 400.
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