7. Simultaneous-Move Games with Incomplete Information

This chapter introduces incomplete information in simultaneous-move games, by allowing one player to be perfectly informed about some relevant characteristic, such as the state of market demand, or its production costs; while other players cannot observe this information. In this setting, we still identify players’ best responses, but we need to condition them on the available information that every player observes when formulating its optimal strategy. Once we find the (conditional) best responses for each player, we are able to describe the Nash equilibria arising under incomplete information (the so-called Bayesian Nash equilibria, BNE) of the game; as the vector of strategies simultaneously satisfying all best responses.