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Advisor(s)
Abstract(s)
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.
Description
Keywords
Industrial organization Bertrand duopoly Uncertainty Bayesian-Nash equilibrium
Citation
Publisher
AIP Publishing