A Simple Model of Bertrand Duopoly with Noisy Prices

Kaminski, Bogumil and Latek, Maciej (2012): A Simple Model of Bertrand Duopoly with Noisy Prices.

Abstract

We 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.

• Item Type: MPRA Paper
• Language: English
• Keywords: noisy pricing; bounded rationality; Bertrand oligopoly; game theory
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games

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