Long-run industry equilibrium with uncertainty

In this paper we consider the effects of uncertainty on industry equilibrium when firms must commit themselves to production before prices are revealed. We show that (a) an increase in demand uncertainty will (i) not affect the equilibrium number and size of firms if they are risk neutral, (ii) reduce the equilibrium number of firms if they are risk averse, but will have an ambiguous effect on their size. (b) In equilibrium, firms operate at capacity if they are risk neutral, but at excess capacity if they are risk averse.