Pricing Policies in a Market With Asymmetric Information and Non-Bayesian Firms

Miguel Ángel Ropero

Annals of Economics and Finance, 2019, vol. 20, issue 2, 541-563

Abstract: This paper explores price-setting in a two-period duopoly model where only one firm, which is non-Bayesian, is uncertain about some market conditions. In this context, the informed firm must choose whether to maximize its profits in the first period or to choose a suboptimal price in period 1 to fool its rival in the second period. Under certain conditions, we obtain that the optimal prices set by the informed and the uninformed firms will increase with demand uncertainty. Additionally, we analyse the conditions under which the optimal prices are greater in this duopoly context than in a monopoly.

Keywords: Asymmetric information; Degree of substitutability between products; Demand uncertainty; Non-Bayesian firm; Nash Equilibrium (search for similar items in EconPapers)
JEL-codes: D43 D83 L13 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2019:v:20:i:2:ropero

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