Induced Price Leadership and (Counter-)spying Rivals’ Play Under Incomplete Information

24 Pages Posted: 11 Feb 2019

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: January 30, 2019

Abstract

We analyze spying out a rival's price in a Bertrand market game with incomplete information. Spying transforms a simultaneous into a robust sequential moves game. We provide conditions for profitable espionage. The spied at firm may attempt to immunize against spying by delaying its pricing decision if its cost is low. This, however, adversely affects beliefs and becomes self-defeating. The spy may also be a counterspy or be fooled to report strategically distorted information. This gives rise to an intriguing signaling problem that admits only partially separating equilibria. Surprisingly, counter-espionage may aggravate the price leadership induced by
spying. Altogether, our analysis offers an explanation and generalization of robust Stackelberg-Bertrand games.

Keywords: Industrial Espionage, Price Leadership, Stackelberg Games, Collusion, Antitrust Policy, Incomplete Information

JEL Classification: L12, L13, L41, D43, D82

Suggested Citation

Fan, Cuihong and Jun, Byoung and Wolfstetter, Elmar G., Induced Price Leadership and (Counter-)spying Rivals’ Play Under Incomplete Information (January 30, 2019). Available at SSRN: https://ssrn.com/abstract=3326079 or http://dx.doi.org/10.2139/ssrn.3326079

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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