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Firm competition in a probabilistic framework of consumer choice

Liao, Hao ; Xiao, Rui ; Chen, Duanbing ; Medo, Matúš ; Zhang, Yi-Cheng

In: Physica A: Statistical Mechanics and its Applications, 2014, vol. 400, p. 47–56

We develop a probabilistic consumer choice framework based on information asymmetry between consumers and firms. This framework makes it possible to study market competition of several firms by both quality and price of their products. We find Nash market equilibria and other optimal strategies in various situations ranging from competition of two identical firms to firms of different sizes and...