Bertrand Competition Under Uncertainty

Maarten Janssen and Eric Rasmusen ()
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Maarten Janssen: Erasmus University Rotterdam

No 1309, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: 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 any of several ways-- as whether to incur a fixed cost of activity, as output choice, or as quality choice. 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: Written 2000-08-01
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Related works:
Working Paper: Bertrand Competition Under Uncertainty (2001)
Working Paper: Bertrand Competition Under Uncertainty (1996)
Working Paper: Bertrand Competition under Uncertainty (1998)
Journal Article: Bertrand Competition under Uncertainty (2002)
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