Bertrand Competition under Uncertainty

Maarten C.W. Janssen () and Eric Rasmusen ()
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Maarten C.W. Janssen: Erasmus University Rotterdam
Eric Rasmusen: Indiana University

No 98-083/1, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Consider a Bertrand model in which each firm may be inactive with aknown probability, so the number of active firms is uncertain. Thissimple model has a mixed-strategy equilibrium in which industryprofits are positive and decline with the number of firms, the samefeatures which make the Cournot model attractive. Unlike in a Cournotmodel with similar incomplete information, Bertrand profits alwaysncrease in the probability other firms are inactive. Profits declinemore sharply than in the Cournot model, and the pattern is similar tothat found by Bresnahan & Reiss (1991).

Date: 1998-08-18
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