A dynamic model of Bertrand competition with entry

This paper analyzes a simple, repeated game of simultaneous entry and prici ng. We report a surprising property of the symmetric equilibrium solution: If the number of potential competitors is increased above two, the market b reaks down with higher probability, and the competitive outcome becomes les s likely. More potential competition lowers welfare another Bertrand parado x. The model can also be applied to auctions to explore whether a revenue m aximizing auctioneer should restrict the number of bidders if bidder partic ipation is costly. (C) 1999 Elsevier Science B.V. All rights reserved.