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.
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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)
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