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Existence Advertising, Price Competition and Asymmetric Market Structure

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Listed:
  • Eaton B. Curtis

    (University of Calgary)

  • MacDonald Ian A.

    (Lincoln University)

  • Meriluoto Laura

    (University of Canterbury)

Abstract

We 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 equilibrium 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 pure-strategy price equilibrium exists in the stage-2 game, and as long as there is some overlap in customer bases, the mixed-strategy price equilibrium does not converge to the Bertrand equilibrium.

Suggested Citation

  • 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.
    • Handle: RePEc:bpj:bejtec:v:10:y:2010:i:1:n:39
    DOI: 10.2202/1935-1704.1687
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    References listed on IDEAS

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    Cited by:

    1. De Nijs, Romain, 2013. "Information provision and behaviour-based price discrimination," Information Economics and Policy, Elsevier, vol. 25(1), pages 32-40.
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    3. Gomis-Porqueras, Pedro & Julien, Benoit & Chengsi, Wang, 2012. "Informative Advertising in Directed Search," MPRA Paper 38057, University Library of Munich, Germany.
    4. David P. Myatt, 2019. "A Theory of Stable Price Dispersion," Economics Series Working Papers 873, University of Oxford, Department of Economics.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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