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Robustness to strategic uncertainty in price competition

Ola Andersson, Cédric Argenton and Jörgen Weibull

No 726, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: We model a player's uncertainty about other player's strategy choices as probability distributions over their strategy sets. We call a strategy profile robust to strategic uncertainty if it is the limit, as uncertainty vanishes, of some sequence of strategy profiles in each of which every player's strategy is optimal under his or her uncertainty about the pthers. We apply this definition to Bertrand games with a continuum of equilibrium prices and show that our robustness criterion selects a unique Nash equilibrium price. This selection agrees with available experimental findings.

Keywords: Nash equilibrium; refinement; strategic uncertainty; price competition (search for similar items in EconPapers)
JEL-codes: C72 D43 L13 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2010-03-31, Revised 2010-04-08
New Economics Papers: this item is included in nep-com, nep-cse and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:hastef:0726

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