EconPapers    
Economics at your fingertips  
 

Moral hazard, Bertrand competition and natural monopoly

Brishti Guha ()

Journal of Economics, 2017, vol. 121, issue 2, No 3, 153-171

Abstract: Abstract In the traditional model of Bertrand price competition among symmetric firms, there is no restriction on the number of firms that are active in equilibrium. A symmetric equilibrium exists with the different firms sharing the market. I show that this does not hold if we preserve the symmetry between firms but introduce moral hazard with a customer-sensitive probability of exposure; competition necessarily results in a natural monopoly with only one active firm. Sequential price announcements and early adoption are some equilibrium selection mechanisms that help to pin down the identity of the natural monopolist. The insights of the basic model are robust to many extensions.

Keywords: Bertrand competition; Active firms; Moral hazard; Natural monopoly (search for similar items in EconPapers)
JEL-codes: C73 D43 D82 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1007/s00712-017-0527-7 Abstract (text/html)

Related works:
Working Paper: Moral Hazard, Bertrand Competition, and Natural Monopoly (2016) Downloads
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:kap:jeczfn:v:121:y:2017:i:2:d:10.1007_s00712-017-0527-7

DOI: 10.1007/s00712-017-0527-7

Access Statistics for this article

Journal of Economics is currently edited by Giacomo Corneo

More articles in Journal of Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

 
Page updated 2021-12-12
Handle: RePEc:kap:jeczfn:v:121:y:2017:i:2:d:10.1007_s00712-017-0527-7