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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 1 year ago
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