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Pricing Policies in a Market With Asymmetric Information and Non-Bayesian Firms

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  • Miguel Angel Ropero

    (Department of Applied Economics, University of Malaga)

Abstract

This paper explores price-setting in a two-period duopoly model where only one firm, which is non-Bayesian, is uncertain about some market conditions. In this context, the informed firm must choose whether to maximize its profits in the first period or to choose a suboptimal price in period 1 to fool its rival in the second period. Under certain conditions, we obtain that the optimal prices set by the informed and the uninformed firms will increase with demand uncertainty. Additionally, we analyse the conditions under which the optimal prices are greater in this duopoly context than in a monopoly.

Suggested Citation

  • Miguel Angel Ropero, 2019. "Pricing Policies in a Market With Asymmetric Information and Non-Bayesian Firms," Annals of Economics and Finance, Society for AEF, vol. 20(2), pages 541-563, November.
    • Handle: RePEc:cuf:journl:y:2019:v:20:i:2:ropero
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    More about this item

    Keywords

    Asymmetric information; Degree of substitutability between products; Demand uncertainty; Non-Bayesian firm; Nash Equilibrium;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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