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Price Competition in Segmented Industries

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  • Walter Garcia-Fontes

    (Universitat Pompeu Fabra)

Abstract

Repeated interaction between duopolists in a segmented industry is considered. The industry is fragmented into two separate segments. The duopolists compete in prices and segment choice, assuming that pricing strategies are completely flexible while segment choice is irreversible. Initially the two firms are located in different segments of the market, but they can choose to extend their operation to the other segment, operating in the whole industry. It is shown that there exists an equilibrium involving segment location and collusion in prices. The equilibrium path is further restricted by the magnitude of the fixed cost of entering the other segment, and by refinements on the equilibrium concept. Finally, the implications of the irreversibility of the entry decision are analyzed.

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Bibliographic Info

Paper provided by EconWPA in its series Industrial Organization with number 9308001.

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Length: 23 pages
Date of creation: 05 Aug 1993
Date of revision: 06 Aug 1993
Handle: RePEc:wpa:wuwpio:9308001

Note: 23 pages, LaTeX file, titlepage.sty , epsf.sty, 3 figures Encapsulated Postscript, uuencoded, compressed and tarred.
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  1. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
  2. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
  3. Basu, Kaushik & Bell, Clive, 1991. "Fragmented duopoly : Theory and applications to backward agriculture," Journal of Development Economics, Elsevier, vol. 36(2), pages 145-165, October.
  4. Spence, A Michael, 1977. "Nonprice Competition," American Economic Review, American Economic Association, vol. 67(1), pages 255-59, February.
  5. Carl Davidson & Raymond Deneckere, 1984. "Excess Capacity and Collusion," Discussion Papers 675, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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