Consider the following asymmetric-information model of Bertrand duopoly with diﬀerentiated products. Demand for ﬁrm i is...

Consider the following asymmetric-information model of Bertrand duopoly with diﬀerentiated products. Demand for ﬁrm i is qi(pi,pj) = a−pi + bi ·pj. Costs are zero for both ﬁrms. The sensitivity of ﬁrm i’s demand to ﬁrm j’s price is either high or low. That is, bi is either bH or bL, where bH > bL > 0. For each ﬁrm, bi = bH with probability θ and bi = bL with probability 1−θ, independent of the realization of bj. Each ﬁrm knows its own bi but not its competitor’s. All of this is common knowledge.

What conditions define a symmetric pure-strategy Bayesian Nash equilibrium of this game? Solve for such an equilibrium

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Rahul Sunny answered 10 months ago

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