Bertrand Market Games with Espionage under Incomplete Information

17 Pages Posted: 20 Mar 2017 Last revised: 9 Nov 2017

See all articles by Cuihong Fan

Cuihong Fan

Shanghai University of Finance and Economics

Byoung Jun

Korea University

Elmar Wolfstetter

Humboldt University of Berlin - Faculty of Economics; Korea University - College of Economics and Commerce; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: November 8, 2017

Abstract

We analyze the effect of espionage on pricing in a Bertrand market with substitutes. We explain why incomplete information is essential for a robust espionage equilibrium. Yet, under incomplete information espionage is not always profitable (the second-mover advantage may vanish) and we provide sufficient conditions for profitable espionage. Moreover, while the spied at firm suffers from espionage if its cost is low, firing the spy, which is an option if the spy has been exposed, adversely affects beliefs and never pays. Unlike the literature on espionage in entry games that relies on mixed strategies and complete information, the introduction of incomplete information allows us to focus on pure strategies.

Suggested Citation

Fan, Cuihong and Jun, Byoung and Wolfstetter, Elmar G., Bertrand Market Games with Espionage under Incomplete Information (November 8, 2017). Available at SSRN: https://ssrn.com/abstract=2935591 or http://dx.doi.org/10.2139/ssrn.2935591

Cuihong Fan

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Byoung Jun

Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea, Republic of (South Korea)

Elmar G. Wolfstetter (Contact Author)

Humboldt University of Berlin - Faculty of Economics ( email )

Institut für Wirtschaftstheorie I
Spandauer Strasse 1
Berlin
Germany
+49 30 2093 5652/3 (Phone)
+49 30 2093 5619 (Fax)

HOME PAGE: http://www2.hu-berlin.de/wt1wo/staff/wolfstetter/index.html

Korea University - College of Economics and Commerce ( email )

Anam-dong, Sungbuk-Ku
Seoul, 136-701
Korea

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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