Bertrand-Edgeworth Competition, Demand Uncertainty, and Asymmetric Outcomes

Stanley S Reynolds, Bart J. Wilson

Research output: Contribution to journalArticle

41 Citations (Scopus)

Abstract

We analyze investment and pricing incentives in a symmetric Bertrand- Edgeworth framework with uncertain demand. Firms choose production capacities before observing demand. Prices are chosen after demand is observed. If the extent of demand variation exceeds a threshold level then a symmetric equilibrium in pure strategies for capacities does not exist. A smaller firm has no incentive (ex ante) to expand its capacity because capacity expansion would reduce its expected revenue in the event that demand is lower than expected. Output prices are predicted to have positive variance when demand is low and zero variance when demand is high. Journal of Economic Literature Classification Numbers: D43, L13.

Original languageEnglish (US)
Pages (from-to)122-141
Number of pages20
JournalJournal of Economic Theory
Volume92
Issue number1
DOIs
StatePublished - May 2000

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Demand uncertainty
Bertrand-Edgeworth
Incentives
Uncertain demand
Pure strategies
Revenue
Economics
Small firms
Pricing
Capacity expansion
Production capacity

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Bertrand-Edgeworth Competition, Demand Uncertainty, and Asymmetric Outcomes. / Reynolds, Stanley S; Wilson, Bart J.

In: Journal of Economic Theory, Vol. 92, No. 1, 05.2000, p. 122-141.

Research output: Contribution to journalArticle

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