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Induced Price Leadership and (Counter-)Spying Rivals' Play under Incomplete Information

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  • Cuihong Fan
  • Byoung Heon Jun
  • Elmar G. Wolfstetter

Abstract

We analyze spying out a rival’s price in a Bertrand market game with incomplete information. Spying transforms a simultaneous into a robust sequential moves game. We provide conditions for profitable espionage. The spied at firm may attempt to immunize against spying by delaying its pricing decision if its cost is low. This, however, adversely affects beliefs and becomes self-defeating. The spy may also be a counterspy or be fooled to report strategically distorted information. This gives rise to an intriguing signaling problem that admits only partially separating equilibria. Surprisingly, counter-espionage may aggravate the price leadership induced by spying. Altogether, our analysis offers an explanation and generalization of robust Stackelberg-Bertrand games.

Suggested Citation

  • Cuihong Fan & Byoung Heon Jun & Elmar G. Wolfstetter, 2019. "Induced Price Leadership and (Counter-)Spying Rivals' Play under Incomplete Information," CESifo Working Paper Series 7476, CESifo.
    • Handle: RePEc:ces:ceswps:_7476
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    References listed on IDEAS

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    1. Alex Barrachina & Yair Tauman & Amparo Urbano, 2021. "Entry with two correlated signals: the case of industrial espionage and its positive competitive effects," International Journal of Game Theory, Springer;Game Theory Society, vol. 50(1), pages 241-278, March.

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    More about this item

    Keywords

    industrial espionage; price leadership; Stackelberg games; collusion; antitrust policy; incomplete information;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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