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Pricing and matching under duopoly with imperfect buyer mobility

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  • Massimo A. De Francesco

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Abstract

Recent contributions have explored how lack of buyer mobility affects pricing. For example, Burdett, Shi, and Wright (2001) envisage a two-stage game where, once prices are set by the firms, the buyers play a static game by choosing independently which firm to visit. We incorporate imperfect mobility in a duopolistic pricing game where the buyers are involved into a multi-stage game. The firms are shown to have an incentive to give service priority to loyal customers. Under this rationing rule, equilibrium prices converge to their value under perfect buyer mobility as the number of stages of the buyer game increases

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Paper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 439.

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Date of creation: Nov 2004
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Handle: RePEc:usi:wpaper:439

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Keywords: Bertrand competition; matching; imperfect mobility; sequential equilibrium; buyerloyalty;

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  1. Martin J Osborne & Ariel Rubinstein, 2009. "A Course in Game Theory," Levine's Bibliography 814577000000000225, UCLA Department of Economics.
  2. repec:fth:diecpo:225 is not listed on IDEAS
  3. Dennis W. Carlton, 1991. "The Theory of Allocation and Its Implications for Marketing and Industrial Structure," NBER Working Papers 3786, National Bureau of Economic Research, Inc.
  4. Peters, Michael, 2000. "Limits of Exact Equilibria for Capacity Constrained Sellers with Costly Search," Journal of Economic Theory, Elsevier, vol. 95(2), pages 139-168, December.
  5. Peters, Michael, 1984. "Bertrand Equilibrium with Capacity Constraints and Restricted Mobility," Econometrica, Econometric Society, vol. 52(5), pages 1117-27, September.
  6. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-94, July.
  7. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May.
  8. Carlton, Dennis W, 1991. "The Theory of Allocation and Its Implications for Marketing and Industrial Structure: Why Rationing Is Efficient," Journal of Law and Economics, University of Chicago Press, vol. 34(2), pages 231-62, October.
  9. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  10. Bulkley, George, 1992. "The role of loyalty discounts when consumers are uncertain of the value of repeat purchases," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 91-101, March.
  11. Caminal, Ramon & Matutes, Carmen, 1990. "Endogenous switching costs in a duopoly model," International Journal of Industrial Organization, Elsevier, vol. 8(3), pages 353-373, September.
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