A Dynamic Duopoly Model with Asymmetric Information.

This paper investigates the impact of asymmetric information on the set of equilibria of a two-period duopoly game with price competition. It turns out that all admissible sequential equilibria of this game share a "collusive" character, i.e., ex ante expected profits for a firm of any type are higher than in the complete information case. For small uncertainties, the results are asymmetric: a small probability of a "good" type firm does not make much difference on the set of equilibrium payoffs, but a small probability of a "bad" type firm does. These results survive the introduction of Kohlberg and Martens' (1986) stability concept. Copyright 1990 by Blackwell Publishing Ltd.