Ambiguity and price competition

Abstract

There are few models of price competition in a homogeneous-good market which permit general asymmetries of information amongst the sellers. This work studies a price game with discontinuous payoffs in which both costs and market demand are ex ante uncertain. The sellers evaluate uncertain profits with maximin expected utilities exhibiting ambiguity aversion. The buyers in the market are permitted to split between sellers tieing at the minimum price in arbitrary ways which may be deterministic or random. The role of the primitives in determining equilibrium prices in the market is analyzed in detail.

Price Competition and Setup Cost

“…We build a model that incorporates a homogeneous product model and a differentiated product model and characterize the conditions under which price competition and price leadership emerge in the market where a new product and existing products are supplied. From the aspect of the homogeneous product model, which is adopted by Cabon-Dhersin and Drouhin [16] and Routledge and Edwards [17], our model shows that Bertrand price competition in a new product market appears depending on the size of the setup cost. While Dastidar [5] and Yano and Komatsubara [2] demonstrate that differences in marginal cost of firms play an important role to explain the emergence of Bertrand competition, our paper provides a new factor, non-sunk setup cost, for the appearance.…”