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Bayesian price leadership

  • Fernanda A. Ferreira
  • Flávio Ferreira
  • Alberto A. Pinto

Abstract

In this paper, we consider a linear price setting duopoly competition with differentiated goods and with unknown costs. The firms’ aims are to choose the prices of their products according to the well-known concept of perfect Bayesian Nash equilibrium. There is a firm (F 1) that chooses first the price p 1 of its good; the other firm (F 2) observes p 1 and then chooses the price p 2 of its good.

We suppose that each firm has two different technologies, and uses one of them following a probability distribution. The utilization of one or the other technology affects the unitary production cost. We show that there is exactly one perfect Bayesian Nash equilibrium for this game. We analyze the advantages, for firms and for consumers, of using the technology with highest production cost versus the one with cheapest production cost.

Keywords

Nash Equilibrium Production Cost Incomplete Information High Production Cost Unitary Production Cost 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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References

  1. [Sta34]
    von Stackelberg, H.: Marktform und Gleichgewicht. Julius Springer, Vienna (1934)Google Scholar
  2. [Gib92]
    Gibbons, R.: A Primer in Game Theory. Pearson Prentice Hall, Harlow (1992)zbMATHGoogle Scholar
  3. [DH04]
    van Damme, E., Hurkens, S.: Endogenous price leadership. Games and Economic Behavior, 47, 404–420 (2004)zbMATHCrossRefMathSciNetGoogle Scholar

Copyright information

© Springer 2007

Authors and Affiliations

  • Fernanda A. Ferreira
    • 1
    • 2
  • Flávio Ferreira
    • 2
  • Alberto A. Pinto
    • 1
  1. 1.Faculdade de Ciências da Universidade do PortoPortoPortugal
  2. 2.Instituto Politécnico do PortoESEIGVila do CondePortugal

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