BERTRAND COMPETITION WHEN RIVALS COSTS ARE UNKNOWN

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 equilibriu m. In the Bertrand-Nash equilibrium when rivals' costs are unknown, fi rms price above marginal cost and have positive expected profit. The a nalysis is extended to franchise competition. The market equilibrium i s sensitive to market structure and yields incentives for entry.