Abstract:

We look at a Bertrand model in which each firm may be inactive with a known probability, so the number of active firms is uncertain. The 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 those in a Cournot model with similar uncertainty, Bertrand profits always increase in the probability that firms are inactive. Profits decline more sharply than in the Cournot model, the pattern found empirically in Bresnahan and Reiss [1991].

Document Type: Original article

DOI: 10.1111/1467-6451.00165

Affiliations: 1: Department of Economics, Erasmus University, Rotterdam, The Netherlands janssen@few.eur.nl 2: Department of Business Economics and Public Policy, Kelley School of Business, Indiana University, USA erasmuse@indiana.edu