THESIS
2014
x, 64 pages : illustrations (some color) ; 30 cm
Abstract
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...[
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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.
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