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Multiproduct price competition with heterogeneous consumers and nonconvex costs

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  • Braido, Luis H.B.

Abstract

This paper extends the oligopolistic model of price competition to environments with multiple goods, heterogeneous consumers, and arbitrary continuous cost functions. A Nash equilibrium in mixed strategies with an endogenous sharing rule is proven to exist. It is also shown that, in environments with fixed costs and constant marginal costs, all (symmetric and asymmetric) equilibria exhibit price dispersion across stores. Furthermore, the paper identifies scenarios in which prices will necessarily be random. In these markets, stores keep each other guessing because, given the fixed costs, they would incur a loss if their price strategies were anticipated and beaten by competitors. This is interpreted as an important economic feature that is possibly behind random price promotions such as weekly specials.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 45 (2009)
Issue (Month): 9-10 (September)
Pages: 526-534

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Handle: RePEc:eee:mateco:v:45:y:2009:i:9-10:p:526-534

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Web page: http://www.elsevier.com/locate/jmateco

Related research

Keywords: Bertrand competition Discontinuous games Mixed strategy Weekly specials Price dispersion;

References

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  1. Jennifer F. Reinganum, 1978. "A Simple Model of Equilibrium Price Dispersion," Discussion Papers 335, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  10. McAfee R. Preston, 1995. "Multiproduct Equilibrium Price Dispersion," Journal of Economic Theory, Elsevier, vol. 67(1), pages 83-105, October.
  11. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
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  13. Dastidar, Krishnendu Ghosh, 1997. "Comparing Cournot and Bertrand in a Homogeneous Product Market," Journal of Economic Theory, Elsevier, vol. 75(1), pages 205-212, July.
  14. Luis H. B. Braido, 2004. "General Equilibrium with Endogenous Securities and Moral Hazard," Microeconomics 0407007, EconWPA.
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Cited by:
  1. Monteiro, Paulo K. & Page Jr., Frank H., 2009. "Endogenous mechanisms and Nash equilibrium in competitive contracting games," Journal of Mathematical Economics, Elsevier, vol. 45(9-10), pages 664-678, September.
  2. Bruno Aurichio & Luis H. B. Braido, 2009. "Dynamic Price Competition in Auto-Insurance Brokerage," Fucape Working Papers 17, Fucape Business School.

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