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Buyers' decision and price competition

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  • Paolo Buccirossi
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    Abstract

    This paper describes a price game in which buyers’ decisions about how much and where to buy are based on different information and/or preferences. Such consumers’ behavior is likely when demand comes from public agencies and state-owned firms. Consumers in this case are said to be uninformed. The model analyzes the price Nash equilibrium reached for any possible proportion of uninformed demand. In equilibrium there is always a positive probability that uninformed consumers pay a price above the monopoly level. For large proportions of uninformed consumers all firms charge a price above the monopoly level. The model also points out that the intense competition associated with Bertrand-like settings depends largely on the assumptions about consumers’ behavior.

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    Bibliographic Info

    Paper provided by University of Rome La Sapienza, Department of Public Economics in its series Working Papers with number 36.

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    Length: 35
    Date of creation: Jan 1999
    Date of revision:
    Handle: RePEc:sap:wpaper:wp36

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    Keywords: price competition; imperfect information; Bertrand.;

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