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Bertrand Competition when Rivals' Costs are Unknown
Daniel F. Spulber
The Journal of Industrial Economics
Vol. 43, No. 1 (Mar., 1995), pp. 1-11
Published by: Wiley
Stable URL: http://www.jstor.org/stable/2950422
Page Count: 11
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The conclusions of the Bertrand model of competition are substantially altered by the presence of asymmetric information about rivals' costs. Asymmetric information eliminates the discontinuity in the Bertrand model and significantly alters the properties of the market equilibrium. In the Bertrand-Nash equilibrium when rivals' costs are unknown, firms price above marginal cost and have positive expected profit. The analysis is extended to franchise competition. The market equilibrium is sensitive to market structure and yields incentives for entry.
The Journal of Industrial Economics © 1995 Wiley