A Model of Bertrand Competition with Asymmetric Demand

Alexandra Vintila () and Mihai Daniel Roman ()
Additional contact information
Alexandra Vintila: Bucharest University of Economic Studies
Mihai Daniel Roman: Bucharest University of Economic Studies

A chapter in Eurasian Business and Economics Perspectives, 2022, pp 45-57 from Springer

Abstract: Abstract The substantiation of the price decision is an interactive and complex decision-making process that involves rational choices resulting in the positioning of a firm on the market. This paper addresses static Bayesian games to highlight the behavior of firms in conditions of a duopoly market in asymmetric information. Based on hypothetical data, we define a multi-linear demand function and the optimization program at the level of each firm in order to determine the Bayesian equilibrium of the game. The strategy space is defined by the prices set by the firms, while the type of firms is given by the level of different demand for each type of company. Since the demand requested on the market is indeterminate, one firm makes assumptions regarding the level of the opponent’s demand, thus outlining the player’s beliefs. We observed that equilibrium prices depend on the following exogenous factors: the demand parameters, the marginal cost of each type of company and the probability with which a firm makes assumptions regarding the opponent’s demand function. We find that a firm can set a higher price than its opponent under the assumption of a probability that tends to 0. If the probability to face a specific type of company is zero or one, we obtain solutions of a model in complete information.

Keywords: Game theory model; Bertrand competition; Static game; Incomplete information; Duopoly (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:eurchp:978-3-031-15531-4_3

Ordering information: This item can be ordered from
http://www.springer.com/9783031155314

DOI: 10.1007/978-3-031-15531-4_3

Access Statistics for this chapter

More chapters in Eurasian Studies in Business and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().