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Price Competition in Multimarket Duopolies

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  • Rajiv Lal
  • Carmen Matutes
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    Abstract

    In this article, we analyze the pricing strategies of firms that compete for the demand of an assortment of goods in a complete information static framework. In particular, we model the competition between two symmetric firms in a market that consists of two types of consumers, each of which may buy one unit of both goods sold by the two firms. We show that all Nash equilibria are such that neither firm charges the same price for both goods. Interestingly, under certain conditions, the firms jointly price discriminate between the two types of consumers and may even achieve the same level of profits as if they maximized joint profits; for another set of conditions, the unique equilibrium is such that the price for one of the goods and the price for the bundle are the same as the price of the good in a standard Hotelling model with one good. Finally, we show that if these equilibria exist, both firms prefer to sell both goods rather than specialize in either one of them. These results are a direct consequence of the interplay between the multimarket rivalry and the existence of more than one market segment, as modelled in this article.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal RAND Journal of Economics.

    Volume (Year): 20 (1989)
    Issue (Month): 4 (Winter)
    Pages: 516-537

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    Handle: RePEc:rje:randje:v:20:y:1989:i:winter:p:516-537

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    Cited by:
    1. Azar, Ofer H., 2010. "Can more consumers lead to lower profits? A model of multi-product competition," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 76(2), pages 184-195, November.
    2. Saul Lach, 2002. "Existence And Persistence Of Price Dispersion: An Empirical Analysis," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 84(3), pages 433-444, August.
    3. António Brandão & João Correia-da-Silva & Joana Pinho, 2010. "Spatial competition between shopping centers," FEP Working Papers, Universidade do Porto, Faculdade de Economia do Porto 394, Universidade do Porto, Faculdade de Economia do Porto.
    4. Azar, Ofer H., 2002. "Can Price Discrimination be Bad for Firms and Good for All Consumers? A Theoretical Analysis of Cross-Market Price Constraints with Entry and Product Differentiation," MPRA Paper 4575, University Library of Munich, Germany.
    5. Johansen, Bjørn Olav, 2012. "The Buyer Power Of Multiproduct Retailers: Competition With One-Stop Shopping," Working Papers in Economics, University of Bergen, Department of Economics 03/12, University of Bergen, Department of Economics.
    6. Glenn Ellison, 2004. "A Model of Add-on Pricing," Economics Working Papers, Institute for Advanced Study, School of Social Science 0049, Institute for Advanced Study, School of Social Science.
    7. Bouckaert, Jan & Degryse, Hans, 1998. "Price Competition Between an Expert and a Non-Expert," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1905, C.E.P.R. Discussion Papers.
    8. Shelegia, Sandro, 2012. "Multiproduct pricing in oligopoly," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 30(2), pages 231-242.
    9. Zhang, Anming & Zhang, Yimin, 1996. "Stability of a Cournot-Nash equilibrium: The multiproduct case," Journal of Mathematical Economics, Elsevier, Elsevier, vol. 26(4), pages 441-462.
    10. Sandro Shelegia, 2008. "Pricing Interrelated Goods in Oligopoly," Working Papers, International School of Economics at TSU, Tbilisi, Republic of Georgia 014-08, International School of Economics at TSU, Tbilisi, Republic of Georgia.
    11. Stephane Caprice & Vanessa von Schlippenbach, 2008. "Competition policy in a concentrated and globalized retail industry," Working Papers, Institut National de la Recherche Agronomique, France 23775, Institut National de la Recherche Agronomique, France.

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