This article will explore an overview of pricing strategy. We begin by explaining the simple Cournot and Bertrand games, which are game theoretic analyses of a firm’s pricing strategy. With this information we proceed by explaining what strategic complementarities and substitutes are before looking at a paper by Fudenberg and Tirole entitled “The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look”.
In this scenario we have (at least) two firms who compete on the amount of output they produce, choosing the quantity simultaneously and independently whilst taking the output decision of the other firms as given. [...]