Uncertainty Fuels Excessive Competition, Hurting Consumers in Oligopolies
The article explores how uncertainty about production costs affects competition in markets where multiple companies sell similar products. The researchers focused on a scenario where firms don't know their exact costs in advance but learn about them later. They found that this uncertainty led to more companies entering the market and showed that the ideal number of firms in the market also increased. However, the extra competition created by uncertainty can actually make the situation worse by causing an excess of companies. This effect appears consistently even when considering different factors. Moreover, uncertainty tends to make the overall negative impact of competition on consumer welfare even stronger.