Bertrand under Uncertainty: Private and Common Costs

Johan Lagerlof

No 16-02, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: This paper proposes an n-firm homogeneous-good Bertrand model with private information about costs. The model allows for any non-negative correlation between the cost draws and for any demand elasticity but still yields a closed-form solution. The solution is simple, in pure strategies, and involves price dispersion. For some parameter values, a weak version of the winner’s curse arises. This framework is used to study the question whether cost uncertainty softens competition. Earlier literature has shown that the answer (perhaps counter-intuitively) is “no,” while assuming (i) independent cost draws and (ii) no drastic innovations. The analysis here shows that relaxing (ii) but not (i) does not alter that result. However, when the cost draws are sufficiently highly correlated and the price elasticity of demand is sufficiently low, cost uncertainty indeed softens competition.

Keywords: Bertrand competition; Hansen-Spulber model; private information; information sharing; common values; private values; winner’s curse (search for similar items in EconPapers)
JEL-codes: D43 D44 L13 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2016-02-12
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.econ.ku.dk/english/research/publications/wp/dp_2016/1602.pdf (application/pdf)

Related works:
Journal Article: Bertrand under Uncertainty: Private and Common Costs (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:1602

Access Statistics for this paper

More papers in Discussion Papers from University of Copenhagen. Department of Economics Oester Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Hoffmann ().