Competition versus Collusion: The Impact of Consumer Inertia
AbstractWe consider a model of dynamic price competition to analyze the impact of consumer inertia on the ability of firms to sustain high prices. Three main consequences are identified, all of which contrast with predictions of the standard model of collusion: (i) maintaining high prices does not require punishment strategies when firms are sufficiently myopic, (ii) if buyers are sufficiently inert, then high prices can be sustained for all discount factors, and (iii) the ability to maintain high prices may depend non-monotonically on the level of the discount factor when the industry exhibits network externalities and demand is sufficiently viscous. These results provide a number of interesting insights with regard to competitive and collusive pricing behavior. In particular, we illustrate how direct communication between firms may facilitate collusion.
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Bibliographic InfoPaper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 024.
Date of creation: 2010
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Other versions of this item:
- Bos Iwan & Peeters Ronald & Pot Erik, 2012. "Competition versus Collusion: The Impact of Consumer Inertia," Research Memoranda 047, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
- NEP-ALL-2010-05-22 (All new papers)
- NEP-COM-2010-05-22 (Industrial Competition)
- NEP-CSE-2010-05-22 (Economics of Strategic Management)
- NEP-IND-2010-05-22 (Industrial Organization)
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