产业组织6PriceCompetitionBertrandModelFirstMoverStackelberg.ppt

Stackelberg Model (3) First-mover is at advantage. Second-mover is at disadvantage. Sequential Price Competition (1) Identical products and price competition, p1=p2=c Sequential Price Competition (2) Second-mover is at advantage. First-mover is at disadvantage. Sub-Game Perfect Nash Equilibrium (SPNE) Simultaneous Games do not have SPNEs. Dynamic Games have SPNEs. Sub-Game : Part of an Entire Game that can stand alone as a game in itself. Reinhard Selten (1930 - …) German Economist. Recipient of Nobel Prize in Economics (1994). Stay Out or Else??? Incumbent Firm Fight (f) Accommodate (a) New Entrant Enter (E) (0,0) (2,2) Stay Out (S) (1,5) (1,5) NE = {(S,f),(E,a)} Credible Threat??? Incumbent firm’s threat to fight back is not credible. Fight Strategy is not Sub-Game Perfect. Sub-Game Perfect or Perfect Nash Equilbrium A player committed to do the promise or the threat and fulfilling the promise or the threat is the best response of the player. Extensive Form New Entrant Incumbent Firm Enter Stay Out Fight Accommodate (1,5) (0,0) (2,2) The Chain Store Paradox Initial predatory actions to scare future competitors. Non-credible threats will not work. “Empty” Threats. Lecture Notes 6 Price Competition : Bertrand Model Dynamic Games, First and Second Movers : Stackelberg Model KENNY TEGUH PRIBADI BNU–HKBU UNITED INTERNATIONAL COLLEGE ECON4030 : Industrial OrganizationSpring 2011 Joseph Louis Fran?ois Bertrand (1822 – 1900) French Mathematician. Bertrand Model : Price Competition. Bertrand Model (1) Bertrand Model (2) p1 q1 Firm 1 p2 p1p2 p1=p2 p1p2 (a-bp1)/2 Bertrand Model (3) Outcomes of Bertrand Model Nash Equilibrium for Bertrand Duopoly : p1*=p2*=c Any price deviation leads to immediate and complete loss of demand for the firm which charges the higher price. Industry’s output is divided evenly to each individual firm. Drawbacks of Bertrand Models In reality, Price deviation might not lead to immediate and complete loss of demand, due to