CFDP 1237

Strategic Buyers and Privately Observed Prices

Author(s): 

Publication Date: October 1999

Pages: 20

Abstract: 

A model of repeated price competition with large buyers is analyzed. The sellers are allowed to offer different prices to different buyers and the buyers act strategically. The set of subgame perfect Equilibria is investigated under public and private monitoring.

With public monitoring the equilibrium set with large buyers expands relative to the standard model where each buyer is small and behaves myopically.

With private monitoring, where prices are not observable to the competing sellers, the set of equilibrium payoffs shrinks. In the finitely repeated game with private monitoring, all sales are made by the efficient seller. In the infinitely repeated game this result is preserved as long as the sellers condition their prices on the public history. In contrast to the finite horizon game, the set of pure strategy equilibria expands if the sellers are allowed to condition their own past prices. Comparisons are drawn to Markovian equilibria of similar dynamic games.

Keywords: 

Repeated Games, Private Monitoring, Collusion

See CFP: 1079