NO : WP-2026-011
AUTHOR : Nandish Patel
TITLE : On insufficient entry in Bayes-Bertrand oligopoly
ABSTRACT :
We study entry in a differentiated-product Bertrand industry in which firms are privately informed about their marginal costs. We show that policies that facilitate entry, such as per-unit subsidies to entrants increase expected output and total welfare. Under Bayes–Bertrand competition, firms condition their pricing decisions on the expected costs of their rivals rather than on realized costs. In this environment, facilitating entry for relatively inefficient types raises the expected output of inframarginal firms and incumbents, owing to the strategic complementarity of prices. When all firms simultaneously decide whether to enter, it is optimal to allow all potential entrants to participate.
Keywords: Bayes-Bertrand oligopoly, Differentiated products, Market entry, Welfare maximization
JEL Code: D43, D82, L13
Weblink: http://www.igidr.ac.in/pdf/publication/WP-2026-011.pdf
