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Price Setting and Competition in a Simple Duopoly Model

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  • Douglas Gale

Abstract

The paper studies a market in which there are two sellers and one buyer. Each agent wants to trade at most one unit of an indivisible commodity. The sellers are uncertain whether the buyer is receiving offers from one or both of them at any given time. This model induces competitive and monopolistic outcomes for particular parameter values. But, other things being equal, as the buyer becomes very patient, the equilibrium price converges to the competitive one.

Suggested Citation

  • Douglas Gale, 1988. "Price Setting and Competition in a Simple Duopoly Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(4), pages 729-739.
    • Handle: RePEc:oup:qjecon:v:103:y:1988:i:4:p:729-739.
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    File URL: http://hdl.handle.net/10.2307/1886072
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    Citations

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    Cited by:

    1. Amir Heiman, 2010. "The economics of demonstrations: The effect of competition on demonstration and pricing strategies," Marketing Letters, Springer, vol. 21(4), pages 351-363, December.
    2. Binmore, Ken & Osborne, Martin J. & Rubinstein, Ariel, 1992. "Noncooperative models of bargaining," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 7, pages 179-225, Elsevier.
    3. Gianni De Fraja & Jozsef Sakovics, 2001. "Walras Retrouve: Decentralized Trading Mechanisms and the Competitive Price," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 842-863, August.
    4. Heiman, Amir & Ofir, Chezy, 2010. "The effects of imbalanced competition on demonstration strategies," International Journal of Research in Marketing, Elsevier, vol. 27(2), pages 175-187.
    5. Mitsutoshi M. Adachi, 1998. "A note on frictions in the Bazaar type bargaining game," Investigaciones Economicas, Fundación SEPI, vol. 22(2), pages 293-304, May.
    6. Timothy N. Cason & Shakun D. Mago, 2010. "Costly Buyer Search In Laboratory Markets With Seller Advertising," Journal of Industrial Economics, Wiley Blackwell, vol. 58(2), pages 424-449, June.
    7. Sneha Bakshi, 2020. "Limits of price competition: cost asymmetry and imperfect information," International Journal of Game Theory, Springer;Game Theory Society, vol. 49(4), pages 913-932, December.
    8. Andrew F. Daughety, 1992. "A Model Of Search And Shopping By Homogeneous Customers Without Price Precommitment By Firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(3), pages 455-473, September.
    9. Adachi, Mitsutoshi M., 1999. "On the choice of pricing policies: Ex ante commitment and prisoners' dilemma," European Economic Review, Elsevier, vol. 43(9), pages 1647-1663, October.

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