Uncertainty on a Bertrand Duopoly with Product Differentiation

• Type: Article in International Conference Proceedings Book
• Date: 2011

Authors

Fernanda A. Ferreira (Author) Other; Alberto A. Pinto (Author) FCUP

Conference proceedings International

Title: Nonlinear Science and Complexity

Pages: 389-395

Indexing

ISI Web of Knowledge - 5 Citations

Scopus - 6 Citations

Scientific classification

FOS: Natural sciences > Mathematics

Other information

Authenticus ID: P-00G-0G7

DOI: 10.1007/978-90-481-9884-9_45

Resumo (PT): The conclusions of the Bertrand model of competition are substantially altered by the presence of either differentiated goods or asymmetric information about rival’s production costs. In this paper, we consider a Bertrand competition, with differentiated goods. Furthermore, 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 do ex-ante and ex-post analyses of firms’ profits and market prices. 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.

Abstract (EN): The conclusions of the Bertrand model of competition are substantially altered by the presence of either differentiated goods or asymmetric information about rival's production costs. In this paper, we consider a Bertrand competition, with differentiated goods. Furthermore, 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 do ex-ante and ex-post analyses of firms' profits and market prices. 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: 7