The optimal pricing and production strategy for homogeneous product under incomplete information and duopoly

Authors: Yun-Cheng Huang, Chia-Hao Chan, Wen-Ruei Jeng

Journal: Chiao Da Management Review. Jun. 2010, 30(1): 165-206.

Keywords: Cournot model ; Duopoly ; Homogeneous product ; lncomplete information

Abstract:
In the competitive markets, for varied firms, there are some differences in production cost under different production structure. The differences not only affect price but also production strategy. Firms can set the optimal price and propose suitable production strategy after considering both production cost and price from opponents. In addition, early studies only focus on optimum price and quantity, but not concem real situation of market. ln practice, cost structure of competitor is not clear. Firm required to conjecture cost structure of competitor and evaluated their own expected profit, then determine the most appropriate price and production strategies. Therefore, in this study we evaluate the effect about of information cost affecting the expected total profit under incomplete information and duopoly. Production strategies are proposed for homogeneous product. Numerical example and sensitivity analysis of parameters are also taken. Finally, according to the analysis and results, seven concrete conclusions are presented.