Demand uncertainty in price competition leads to lower prices and increased consumer surplus.
The article explores how uncertainty in demand affects competition between companies. It shows that demand uncertainty can lead to fewer possible outcomes, asymmetries in capacity, and lower prices for consumers. Despite these benefits, uncertainty also results in wasted resources due to unused capacity, reducing overall welfare. The researchers used firms' reaction functions and submodular game theory to prove that a specific type of equilibrium always exists in this scenario.