Buyers' decision and price competition

Paolo Buccirossi

No 36, Working Papers in Public Economics from Department of Economics and Law, Sapienza University of Roma

Abstract: This paper describes a price game in which buyers’ decisions about how much and where to buy are based on different information and/or preferences. Such consumers’ behavior is likely when demand comes from public agencies and state-owned firms. Consumers in this case are said to be uninformed. The model analyzes the price Nash equilibrium reached for any possible proportion of uninformed demand. In equilibrium there is always a positive probability that uninformed consumers pay a price above the monopoly level. For large proportions of uninformed consumers all firms charge a price above the monopoly level. The model also points out that the intense competition associated with Bertrand-like settings depends largely on the assumptions about consumers’ behavior.

Keywords: price competition; imperfect information; Bertrand. (search for similar items in EconPapers)
JEL-codes: L13 (search for similar items in EconPapers)
Pages: 35
Date: 1999-01
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