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Oligopolistic competition in price and quality

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  • Dubovik, Andrei
  • Janssen, Maarten C.W.

Abstract

We consider an oligopolistic market where firms compete in price and quality and where consumers have heterogeneous information: some consumers know both the prices, and quality of the products offered, some know only the prices, and some know neither. We show that if there are sufficiently many uninformed consumers, then there exists a unique equilibrium where price is a perfect indicator of quality. This equilibrium is characterized by dispersion and Pareto-inefficiency of the price/quality offers, where better price/quality combinations are associated with lower prices.

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  • Dubovik, Andrei & Janssen, Maarten C.W., 2012. "Oligopolistic competition in price and quality," Games and Economic Behavior, Elsevier, vol. 75(1), pages 120-138.
    • Handle: RePEc:eee:gamebe:v:75:y:2012:i:1:p:120-138
    DOI: 10.1016/j.geb.2011.09.005
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    2. Sandro Shelegia & Chris M. Wilson, 2014. "A Utility-Based Model of Sales with Informative Advertising," Vienna Economics Papers vie1406, University of Vienna, Department of Economics.
    3. Samir Mamadehussene & Francisco Silva, 2023. "Modeling Competition over Multiple Variables under Limited Consumer Awareness," Journal of Industrial Economics, Wiley Blackwell, vol. 71(1), pages 192-211, March.
    4. Dubovik, Andrei & Janssen, Maarten C.W., 2012. "Oligopolistic competition in price and quality," Games and Economic Behavior, Elsevier, vol. 75(1), pages 120-138.
    5. Alexander Karpov, 2016. "Health care inequality, patient mobility and welfare," Economics Bulletin, AccessEcon, vol. 36(2), pages 1000-1009.
    6. Fulan Wu, 2017. "Signaling Unobservable Quality Choice through Price and Advertising: The Case with Competing Firms," Manchester School, University of Manchester, vol. 85(2), pages 243-260, March.
    7. Qu, Chenrui & Wang, Grace W.Y. & Zeng, Qingcheng, 2017. "Modelling port subsidy policies considering pricing decisions of feeder carriers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 99(C), pages 115-133.
    8. Mark Armstrong, 2015. "Search and Ripoff Externalities," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 273-302, November.
    9. Lijuan Yang & Eldon Y. Li & Yu Zhang, 2020. "Pricing and Subsidy Models for Transshipment Sustainability in the Three Gorges Dam Region of China," Sustainability, MDPI, vol. 12(17), pages 1-20, August.
    10. Sandro Shelegia & Chris M. Wilson, 2021. "A Generalized Model of Advertised Sales," American Economic Journal: Microeconomics, American Economic Association, vol. 13(1), pages 195-223, February.
    11. Shelegia, Sandro & Wilson, Chris, 2016. "A Generalized Model of Sales," EconStor Preprints 147411, ZBW - Leibniz Information Centre for Economics.
    12. Sandro Shelegia & Chris M Wilson, 2014. "A Utility-Based Model of Sales with Informative Advertising," Discussion Paper Series 2014_09, Department of Economics, Loughborough University, revised Oct 2014.
    13. Francisco Silva & Samir Mamadehussene, 2020. "The Equivalence Between Sequential and Simultaneous Firm Decisions," Documentos de Trabajo 541, Instituto de Economia. Pontificia Universidad Católica de Chile..
    14. Anna Nagurney & Dong Li, 2014. "A Dynamic Network Oligopoly Model with Transportation Costs, Product Differentiation, and Quality Competition," Computational Economics, Springer;Society for Computational Economics, vol. 44(2), pages 201-229, August.

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    More about this item

    Keywords

    Oligopoly; Competition; Price; Quality; Imperfect information; Signaling;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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