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Author: | Elberfeld, W. Wolfstetter, E. |
Title: | A dynamic model of Bertrand competition with entry |
Journal: | International Journal of Industrial Organization
1999 : MAY, VOL. 17:4, p. 513-556 |
Index terms: | DYNAMIC MODELS COMPETITION ORGANIZATIONS |
Language: | eng |
Abstract: | This paper analyzes a simple, repeated game of simultaneous entry and pricing. The authors report a surprising property of the symmetric equilibrium solution: If the number of potential competitors is increased above two, the market breaks down with higher probability, and the competitive outcome becomes less likely. More potential competition lowers welfare -- another Bertrand paradox. The model can also be applied to auctions to explore whether a revenue maximizing auctioneer should restrict the number of bidders if bidder participation is costly. |
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