scholarly journals Strategic Pricing: A Game In Market Economics

2010 ◽  
Vol 8 (6) ◽  
Author(s):  
Tarek H. Selim
Keyword(s):  
Nash Equilibrium ◽  
Price Competition ◽  
Product Price ◽  
Market Outcomes ◽  
Strategic Pricing ◽  
Price Wars ◽  
Quality Product ◽  
Unique Nash Equilibrium ◽  
Bertrand Game ◽  
Price War

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; unicode-bidi: embed; direction: ltr; mso-pagination: none;"><span style="color: black; font-size: 10pt; mso-bidi-language: AR-EG;" lang="EN-GB"><span style="font-family: Times New Roman;">In this paper, game theory is applied to the case of price wars in a market scenario game towards a converging solution of Nash equilibrium. This is done using the famous <span style="mso-bidi-font-style: italic;">Bertrand Game</span>, starting first with a simple version of a game involving two players with undifferentiated products who move simultaneously by merely choosing their prices, and then proceed by extending the market scenario to a <span style="mso-bidi-font-style: italic;">Differentiated Bertrand Game</span>. The market scenario is based on two main rivals. &ldquo;LOCAL&rdquo; player is faced by a lower-priced &ldquo;ASIAN&rdquo; player who has a significantly lower quality product. Price wars dictate market outcomes. Implications of the game reveal interesting, but rather unexpected, results. Specifically, it is shown that resorting to a price war alone is not the optimum choice by the LOCAL player. Rather, the incumbent must not lower his price, even if faced by a lower priced competitor.<span style="mso-spacerun: yes;">&nbsp; </span>This runs in contrast to traditional price war theory. The introduction of lower priced substitutes do not reveal price reduction of the incumbent firm. A unique Nash equilibrium arises when the LOCAL player differentiates his products and charges higher prices compared to the ASIAN player. Consequently, price competition and price wars, when augmented by differentiated aspects of product quality, do not lead to price convergence nor necessarily lead to price reductions over time.</span></span></p>

Applications to Economics

2016 ◽  
Author(s):  
Jacob K. Goeree ◽  
Charles A. Holt ◽  
Thomas R. Palfrey
Keyword(s):  
Nash Equilibrium ◽  
Private Information ◽  
Price Competition ◽  
Quantal Response ◽  
Unique Nash Equilibrium ◽  
Common Effort ◽  
The Cost ◽  
All Pay Auction ◽  
Individual Effort ◽  
Applications To Economics

This chapter explores whether the equilibrium effects of noisy behavior can cause large deviations from standard predictions in economically relevant situations. It considers a simple price-competition game, which is also partly motivated by the possibility of changing a payoff parameter that has no effect on the unique Nash equilibrium, but which may be expected to affect quantal response equilibrium. In the minimum-effort coordination game studied, any common effort in the range of feasible effort levels is a Nash equilibrium, but one would expect that an increase in the cost of individual effort or an increase in the number of players who are trying to coordinate would reduce the effort levels observed in an experiment. The chapter presents an analysis of the logit equilibrium and rent dissipation for a rent-seeking contest that is modeled as an “all-pay auction.” The final two applications in this chapter deal with auctions with private information.

scholarly journals A Small Step from Price Competition to Price War: Understanding Causes, Effects and Possible Countermeasures

2016 ◽  
Vol 9 (3) ◽  
pp. 1 ◽  
Author(s):  
Andreas Krämer ◽  
Martin Jung ◽  
Thomas Burgartz
Keyword(s):  
Price Competition ◽  
Capacity Utilization ◽  
Long Distance ◽  
The Public ◽  
Price Wars ◽  
Substantial Risk ◽  
Price War ◽  
Deutsche Bahn ◽  
Multi Method Approach ◽  
Definition Of

<p>The first part of this paper describes the characteristics of price wars, pointing to recent examples that have caused a stir among the public as well as in the respective industries. A new, concise definition of the term price war is suggested. In the second part drivers for price wars are discussed and explained based on behavioral economics (understanding the competitor’s strategy as well as a company’s own cost situation). Particularly in industries that are characterized by a high proportion of costs that are unchangeable in the medium-term and low variable costs there is a substantial risk for unintended price competition possibly ending in a price war. Even slight price reductions can have fatal consequences when decision makers mistakenly estimate the price elasticities too high. In the third part a case study of a price war is presented by focusing on the market of long-distance bus journeys in Germany. Since the market for intercity bus connections was liberalized in 2013, the newly created market segment faces a very strong growth and intensive competition. Using a multi-source-multi-method-approach it is shown how the market entry of UK-based company Megabus affected price levels for bus journeys und initiated competitive reactions of the German railway operator Deutsche Bahn. The interaction of various parameters (low barriers to enter the market; high similarity of products/services; fixation on market share and capacity utilization) leads to a ruinous price competition and leaves few chances for a sustainable profitability. Measures to avoid an impending or to terminate an ongoing price war are presented.</p>

scholarly journals Research on Price Wars in Supply Chain Networks Based on Multistage Evolutionary Prisoner’s Dilemma Game

2019 ◽  
Vol 2019 ◽  
pp. 1-15
Author(s):  
Xiangbin Xu ◽  
Ermin Zhou
Keyword(s):  
Supply Chain ◽  
Price Competition ◽  
Prisoner's Dilemma ◽  
Prisoner’S Dilemma ◽  
Prisoner’S Dilemma Game ◽  
Supply Chain Networks ◽  
Price Wars ◽  
Key Factor ◽  
Prisoner's Dilemma Game ◽  
Price War

In this paper, we extend price wars to supply chain networks (SCNs), focusing on how price wars affect the performance of SCNs and how to contain a price war. We propose a computational model in which the price competition is modelled as a multistage evolutionary prisoner’s dilemma game between business-related neighbors in each stage of the SCN, and the temptation to defect of the prisoner’s dilemma game is modelled as a function of the quotation price, which couples the price competition and the dynamic of the SCN. It is found that the price defectors’ exposure rate is the key factor causing price war of the SCN, and only a large proportion of firms in a closely related industry join the price alliance, and the price war in the SCN can be contained effectively.

scholarly journals Economic Analysis of Accident Law: A New Liability Rule that Induces Socially Optimal Behaviour in Case of Limited Information

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Astha Srivastava ◽  
Ankur Srivastava
Keyword(s):  
Nash Equilibrium ◽  
Economic Analysis ◽  
Standard Of Care ◽  
Limited Information ◽  
Liability Rule ◽  
Rule Based ◽  
Liability Rules ◽  
Levels Of Care ◽  
Unique Nash Equilibrium ◽  
Optimal Behaviour

AbstractIn accident law, we seek a liability rule that will induce both the parties to adopt socially optimal levels of precaution. Economic analysis, however, shows that none of the commonly used liability rules induce both parties to adopt optimal levels, if courts have access only to ‘Limited Information’ on. In such a case, it has also been established (K. (2006). Efficiency of liability rules: a reconsideration. J. Int. Trade Econ. Dev. 15: 359–373) that no liability rule based on cost justified untaken precaution as a standard of care can be efficient. In this paper, we describe a two-step liability rule: the rule of negligence with the defence of relative negligence. We prove that this rule has a unique Nash equilibrium at socially optimal levels of care for the non-cooperative game, and therefore induces both parties to adopt socially optimal behaviour even in case of limited information.

scholarly journals Efficiency and Equilibrium in Network Games: An Experiment

2021 ◽  
pp. 1-44
Author(s):  
Edoardo Gallo ◽  
Chang Yan
Keyword(s):  
Nash Equilibrium ◽  
Network Structure ◽  
Economic Systems ◽  
Central Feature ◽  
Network Games ◽  
Trade Off ◽  
Network Game ◽  
Asymmetric Networks ◽  
Unique Nash Equilibrium

Abstract The tension between efficiency and equilibrium is a central feature of economic systems. We examine this trade-off in a network game with a unique Nash equilibrium in which agents can achieve a higher payoff by following a “collaborative norm”. Subjects establish and maintain a collaborative norm in the circle, but the norm weakens with the introduction of one hub connected to everyone in the wheel. In complex and asymmetric networks of 15 and 21 nodes, the norm disappears and subjects’ play converges to Nash. We provide evidence that subjects base their decisions on their degree, rather than the overall network structure.

Lesser Antilles Lines: The Island of San Huberto (A)

2010 ◽  
pp. 1-10
Author(s):  
James V. Gelly ◽  
Phillip E. Pfeifer
Keyword(s):  
Nash Equilibrium ◽  
Prisoner's Dilemma ◽  
Prisoner’S Dilemma ◽  
Equilibrium Price ◽  
Lesser Antilles ◽  
Caribbean Island ◽  
Price Leadership ◽  
Price War

In this case, the situation is a classic duopoly. Two shipping firms are in a price war over the market for containerized shipping to and from a small Caribbean island. The case presents a table of contributions to both firms as a function of their prices. This table serves as a basis by which the class can explore the concepts of Nash equilibrium, price leadership, and prisoner’s dilemma. It is also available with the case as a student spreadsheet (QA-0355X). See also “Lesser Antilles Lines (B)” (UVA-QA-0641) and “Lesser Antilles Lines (C)” (UVA-QA-0670).

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