IDEAS home Printed from https://ideas.repec.org/p/kud/kuiedp/0104.html
   My bibliography  Save this paper

Undercut-proof Subgame Perfect Equilibrium of a Pricing Game

Author

Listed:
  • Debabrata Datta

    (Asutush College, Calcutta University)

  • Jaideep Roy

    (Institute of Economics, University of Copenhagen)

Abstract

Two firms selling a homogenous product to two types of buyers are involved in a sequential pricing game with zero costs. The pricing strategy available involves a fixed price and a royalty. It is shown that there exists a unique subgame perfect equilibrium with positive profits to both firms if and only if buyers differ significantly in their willingness to pay. In particular, the incumbent sets a positive royalty and sells to the low demand buyer while the entrant only charges a fixed price and sells to the high demand buyer, resulting in an undercut-proof subgame perfect equilibrium.

Suggested Citation

  • Debabrata Datta & Jaideep Roy, 2001. "Undercut-proof Subgame Perfect Equilibrium of a Pricing Game," Discussion Papers 01-04, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:0104
    as

    Download full text from publisher

    File URL: http://www.econ.ku.dk/english/research/publications/wp/2001/0104.pdf/
    Download Restriction: no

    More about this item

    Keywords

    Sequential Pricing; Fixed Price; Royalty; Undercut-proof Subgame Perfect Equilibrium Situation;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kud:kuiedp:0104. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Hoffmann). General contact details of provider: http://edirc.repec.org/data/okokudk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.