In this thesis, we consider how market information available to the companies affects the Bertrand paradox in a duopolistic market. The Bertrand paradox states that the market price level could be as low as the producion cost, even if there are only two companies in the market. It is contradictory to common intuition. In the paradox, it is assumed that there is no communication between two companies. It neglects the fact that the companies are playing a repeated game. They could change their prices and evaluate their own profits. Even if there is no direct communication, information of opponent's price is indirectly provided to companies. The information would enhance companies' coordinative pricing behavior. The companies would be able to escape from the paradox. We provide a...[ Read more ]

In this thesis, we consider how market information available to the companies affects the Bertrand paradox in a duopolistic market. The Bertrand paradox states that the market price level could be as low as the producion cost, even if there are only two companies in the market. It is contradictory to common intuition. In the paradox, it is assumed that there is no communication between two companies. It neglects the fact that the companies are playing a repeated game. They could change their prices and evaluate their own profits. Even if there is no direct communication, information of opponent's price is indirectly provided to companies. The information would enhance companies' coordinative pricing behavior. The companies would be able to escape from the paradox. We provide a model to study the effect of information on companies' pricing behavior. It is shown that with more information available, the market price level could be higher. Parameters can be adjusted so that the market can provide an information of competition. This shortens the coordination of companies and results in a "quick rise, fall slow" price war cycle. By taking limit to the case of no useful information about opponent's price being transmitted, the price level falls to the one predicted in the Bertrand paradox.