Price competition in the Hotelling model with uncertainty on costs

• Type: Article in International Scientific Journal
• Date: 2015

Authors

Alberto A. Pinto (Author) FCUP; Telmo Parreira (Author) Other

Journal

Title: Optimization

Vol. 64 No. 11

Pages: 2477-2493

ISSN: 0233-1934

Publisher: Taylor & Francis

Indexing

ISI Web of Knowledge - 9 Citations

Scopus - 11 Citations

Scientific classification

FOS: Natural sciences > Mathematics

Other information

Authenticus ID: P-00G-M2M

DOI: 10.1080/02331934.2014.917304

Abstract (EN): For the linear Hotelling model with firms located at the boundaries of the segment line, we study the price competition in a scenario of incomplete information in the production costs of both firms. We introduce the bounded uncertain costs (BUC) condition in the production costs and we prove that there is a local optimum price strategy if and only if the BUC condition holds. We compute explicitly the local optimum price strategy and we prove that it does not depend upon the distributions of the production costs of the firms, except on their first moments. We prove that the ex-post profit of a firm is smaller than its ex-ante profit if and only if the production cost of the other firm is greater than its expected cost.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 17