A Dynamic Model of Bertrand Competition with Entry

14 Pages Posted: 11 Feb 1997 Last revised: 31 Oct 2017

See all articles by Walter Elberfeld

Walter Elberfeld

University of Cologne

Elmar Wolfstetter

Humboldt University of Berlin - Faculty of Economics; Korea University - College of Economics and Commerce; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: December 1, 1996

Abstract

This paper analyzes a simple, repeated game of simultaneous entry and pricing. We 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.

JEL Classification: D43, D44, L13

Suggested Citation

Elberfeld, Walter and Wolfstetter, Elmar G., A Dynamic Model of Bertrand Competition with Entry (December 1, 1996). International Journal of Industrial Organization, Vol. 17, 1999. Available at SSRN: https://ssrn.com/abstract=2174 or http://dx.doi.org/10.2139/ssrn.2174

Walter Elberfeld

University of Cologne ( email )

Albertus-Magnus-Platz
Staatswissenschaftliches Seminar
50931 Koeln
Germany
+49 221-470-4356 (Phone)
+49 221-470-5068 (Fax)

Elmar G. Wolfstetter (Contact Author)

Humboldt University of Berlin - Faculty of Economics ( email )

Institut für Wirtschaftstheorie I
Spandauer Strasse 1
Berlin
Germany
+49 30 2093 5652/3 (Phone)
+49 30 2093 5619 (Fax)

HOME PAGE: http://www2.hu-berlin.de/wt1wo/staff/wolfstetter/index.html

Korea University - College of Economics and Commerce ( email )

Anam-dong, Sungbuk-Ku
Seoul, 136-701
Korea

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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