A Simple Model of Bertrand Duopoly with Noisy Prices
AbstractWe examine a market in which consumers are forced to rely on noisy price signals to select between homogeneous products. The noise originates either from firms' price obfuscation or consumers' bounded information processing capabilities. Standard models and empirical experiments of markets with noise or price obfuscation show that it leads to higher prices detrimental to consumers' welfare. This paper identifies conditions under which an opposite result can be expected. In particular, it shows that a moderate level of noise is beneficial to consumers in a market with a cost leader.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 41333.
Date of creation: 14 Sep 2012
Date of revision:
noisy pricing; bounded rationality; Bertrand oligopoly; game theory;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-22 (All new papers)
- NEP-COM-2012-09-22 (Industrial Competition)
- NEP-CTA-2012-09-22 (Contract Theory & Applications)
- NEP-IND-2012-09-22 (Industrial Organization)
- NEP-MIC-2012-09-22 (Microeconomics)
- NEP-MKT-2012-09-22 (Marketing)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rubenstein, A., 1991.
"On Price Recognition and Computational Complexity in a Monopolistic Model,"
35-91, Tel Aviv.
- Rubinstein, Ariel, 1993. "On Price Recognition and Computational Complexity in a Monopolistic Model," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 473-84, June.
- Simon P. Anderson & André de Palma, 2005.
"Price Dispersion and Consumer Reservation Prices,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 14(1), pages 61-91, 03.
- Spector David, 2002. "The Noisy Duopolist," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 2(1), pages 1-19, August.
- Eric K. Clemons & Il-Horn Hann & Lorin M. Hitt, 2002. "Price Dispersion and Differentiation in Online Travel: An Empirical Investigation," Management Science, INFORMS, vol. 48(4), pages 534-549, April.
- David Laibson & Xavier Gabaix, 2004. "Competition and Consumer Confusion," Econometric Society 2004 North American Summer Meetings 663, Econometric Society.
- Perloff, Jeffrey M & Salop, Steven C, 1985.
"Equilibrium with Product Differentiation,"
Review of Economic Studies,
Wiley Blackwell, vol. 52(1), pages 107-20, January.
- Perloff, Jeffrey M & Salop, Steven, 1984. "Equilibrium with product differentiation," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt4cq0m6s3, Department of Agricultural & Resource Economics, UC Berkeley.
- Glenn Ellison & Alexander Wolitzky, 2009. "A Search Cost Model of Obfuscation," NBER Working Papers 15237, National Bureau of Economic Research, Inc.
- Ran Spiegler, 2005.
"Competition over Agents with Boundedly Rational Expectations,"
122247000000000535, UCLA Department of Economics.
- Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
- Spiegler, R., 2006. "Competition over agents with boundedly rational expectations," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
- Michael Thompson & Steve Thompson, 2006. "Pricing in a market without apparent horizontal differentiation: Evidence from web hosting services," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 15(7), pages 649-663.
- KalaycI, Kenan & Potters, Jan, 2011. "Buyer confusion and market prices," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 14-22, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.