Price competition with population uncertainty

Klaus Ritzberger

Mathematical Social Sciences, 2009, vol. 58, issue 2, 145-157

Abstract: The Bertrand paradox holds that price competition among at least two firms eliminates all profits in equilibrium, when firms have identical constant marginal costs. This assumes that the number of competitors is common knowledge among firms. If firms are uncertain about the number of their competitors, there is no pure strategy equilibrium. But in mixed strategies an equilibrium exists. In this equilibrium it takes a large market to wipe out profits. Thus, with population uncertainty, two are not enough for competition.

Keywords: Bertrand; paradox; Population; uncertainty; Price; competition (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (16)

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