The impact of the number of sellers on quantal response equilibrium predictions in Bertrand oligopolies

Abstract

AbstractThis paper studies how increasing the number of sellers in a Bertrand oligopoly with homogenous goods affects the equilibrium price level predicted by logistic quantal response equilibrium (LQRE) and power‐function QRE (PQRE). We show that increasing the number of sellers reduces the average posted price in a PQRE, but can increase the average posted price in an LQRE. Our results indicate that the comparative‐static predictions of QRE (McKelvey & Palfrey, 1995, Games Econ Behav, 10, 6–38) are not necessarily robust to changes of the quantal response function.