Existence Advertising, Price Competition, and Asymmetric Market Structure
AbstractWe examine a two stage duopoly game in which firms advertise their existence to consumers in stage 1 and compete in prices in stage 2. Whenever the advertising technology generates positive overlap in customer bases the equilib- rium for the stage 1 game is asymmetric in that one firm chooses to remain small in comparison to its competitor. For a specific random advertising technology we show that one firm will always be half as large as the other. No equilibrium in pure price strategies exists in the stage 2 game and as long as there is some overlap in customer bases the mixed strategy equilibrium is far from the Bertrand equilibrium.
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Bibliographic InfoPaper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 08/20.
Length: 32 pages
Date of creation: 15 Oct 2008
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Existence advertising; price dispersion; Bertrand paradox; information; duopoly;
Other versions of this item:
- Eaton B. Curtis & MacDonald Ian A. & Meriluoto Laura, 2010. "Existence Advertising, Price Competition and Asymmetric Market Structure," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-29, August.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-12-14 (All new papers)
- NEP-BEC-2008-12-14 (Business Economics)
- NEP-COM-2008-12-14 (Industrial Competition)
- NEP-MIC-2008-12-14 (Microeconomics)
- NEP-MKT-2008-12-14 (Marketing)
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