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To spy or not to (fire the) spy: The benefits of acquiring information about rivals¡¯ play in Bertrand competition

Author

Listed:
  • Cuihong Fan

    (Shanghai University of Finance and Economics)

  • Byoung Heon Jun

    (Korea University, Seoul)

  • Elmar G. Wolfstetter

    (Humboldt-University at Berlin and Korea University, Seoul)

Abstract

The present paper explores the impact of planting a spy in a competing firm who discloses operational information about pricing in a Bertrand market game with differentiated products under incomplete information. The results depend upon whether the presence of the spy is common knowledge and whether the identity of the spy has been disclosed. Altogether, spying may benefit both the spying and the spied at firm. Although the spied at firm would prefer not to be spied at if its cost is low, firing the spy, which is an option if the spy¡¯s identity has been disclosed, adversely affects beliefs and is never profitable.

Suggested Citation

  • Cuihong Fan & Byoung Heon Jun & Elmar G. Wolfstetter, 2016. "To spy or not to (fire the) spy: The benefits of acquiring information about rivals¡¯ play in Bertrand competition," Discussion Paper Series 1609, Institute of Economic Research, Korea University.
    • Handle: RePEc:iek:wpaper:1609
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    File URL: http://econ.korea.ac.kr/~ri/WorkingPapers/w1609.pdf
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    References listed on IDEAS

    as
    1. Amir, Rabah & Stepanova, Anna, 2006. "Second-mover advantage and price leadership in Bertrand duopoly," Games and Economic Behavior, Elsevier, vol. 55(1), pages 1-20, April.
    2. Van Zandt, Timothy & Vives, Xavier, 2007. "Monotone equilibria in Bayesian games of strategic complementarities," Journal of Economic Theory, Elsevier, vol. 134(1), pages 339-360, May.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Industrial espionage; price leadership; collusion; antitrust policy; incomplete information;
    All these keywords.

    JEL classification:

    • 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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