A Dynamic Model of Bertrand Competition with Entry

Elmar Wolfstetter () and Walter Elberfeld
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Walter Elberfeld: University Koeln

Microeconomics from EconWPA

Abstract: 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.

JEL-codes: D43 (search for similar items in EconPapers)
Date: Written
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Related works:
Journal Article: A dynamic model of Bertrand competition with entry (1999)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpmi:9701003

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