Robustness to strategic uncertainty in price competition
AbstractWe 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.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 0726.
Length: 16 pages
Date of creation: 31 Mar 2010
Date of revision: 08 Apr 2010
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Nash equilibrium; refinement; strategic uncertainty; price competition;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-11 (All new papers)
- NEP-COM-2010-04-11 (Industrial Competition)
- NEP-CSE-2010-04-11 (Economics of Strategic Management)
- NEP-GTH-2010-04-11 (Game Theory)
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