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Bertrand Competition Under Uncertainty

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  • Eric Rasmusen

    (Indiana University School of Business)

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 simple 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 do decline more sharply than in the Cournot model, and the pattern is similar to that found by Bresnahan and Reiss (1991).

Suggested Citation

  • Eric Rasmusen, 1996. "Bertrand Competition Under Uncertainty," Industrial Organization 9607002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:9607002
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