Monday, October 26, 2009
Posted by D. Daniel Sokol
Prabal Roy Chowdhury (Indian Statistical Institute, Delhi Center) explains Free Entry Bertrand Competition.
ABSTRACT: This paper examines Bertrand competition under free entry, when firm size vis-a-vis market size is exogenously given. A free entry Bertrand Nash equilibrium (FEBE) exists if and only if relative market size is sufficiently large. Further, there is a unique coalition-proof Nash equilibrium price that corresponds to the minimum FEBE price, leads to average cost pricing for all active firms and is decreasing in market size.