Bertrand Model Under Incomplete Information

• Type: Article in International Conference Proceedings Book
• Date: 2008

Authors

Ferreira, FA (Author) Other; Alberto A. Pinto (Author) Other

Conference proceedings International

Title: NUMERICAL ANALYSIS AND APPLIED MATHEMATICS

Pages: 209-212

International Conference on Numerical Analysis and Applied Mathematics

Psalidi, GREECE, SEP 16-20, 2008

Indexing

ISI Web of Knowledge - 5 Citations

Scopus - 6 Citations

Other information

Authenticus ID: P-004-49C

DOI: 10.1063/1.2990893

Abstract (EN): We consider a Bertrand duopoly model with unknown costs. The firms' aim is to choose the price of its product according to the well-known concept of Bayesian Nash equilibrium. The chooses are made simultaneously by both firms. In this paper, we suppose that each firm has two different technologies, and uses one of them according to a certain probability distribution. The use of either one or the other technology affects the unitary production cost. We show that this game has exactly one Bayesian Nash equilibrium. We analyse the advantages, for firms and for consumers, of using the technology with highest production cost versus the one with cheapest production cost. We prove that the expected profit of each firm increases with the variance of its production costs. We also show that the expected price of each good increases with both expected production costs, being the effect of the expected production costs of the rival dominated by the effect of the own expected production costs.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 4