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An Asymmetric Duopoly Model of Price Framing

Author

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  • Chioveanu Ioana

    (Department of Economics and Finance, Brunel University London, Kingston Lane, UB8 3PH, UK)

Abstract

This note considers an asymmetric duopoly model of price-frame competition in homogeneous product markets. The firms choose simultaneously prices and price formats, and frame differentiation limits price comparability leading to consumer confusion. Here, one firm is more salient than its rival and attracts a larger share of confused consumers. In duopoly equilibrium, the firms randomize on both prices and frames, make strictly positive profits, and pricing is frame-independent. However, the prominent firm sets a higher average price and charges the monopoly price with positive probability. Higher prominence boosts expected profit for both the industry and the salient firm but may harm the rival’s expected profit.

Suggested Citation

  • Chioveanu Ioana, 2019. "An Asymmetric Duopoly Model of Price Framing," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(2), pages 1-7, June.
    • Handle: RePEc:bpj:bejtec:v:19:y:2019:i:2:p:7:n:11
    DOI: 10.1515/bejte-2018-0068
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    References listed on IDEAS

    as
    1. Yiquan Gu & Tobias Wenzel, 2014. "Strategic Obfuscation and Consumer Protection Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 62(4), pages 632-660, December.
    2. Mark Armstrong & Jidong Zhou, 2011. "Paying for Prominence," Economic Journal, Royal Economic Society, vol. 121(556), pages 368-395, November.
    3. Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, vol. 91(3), pages 278-287, March.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Chioveanu, Ioana, 2019. "Prominence, complexity, and pricing," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 551-582.
    2. Chioveanu, Ioana, 2020. "A more general model of price complexity," International Journal of Industrial Organization, Elsevier, vol. 69(C).

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    More about this item

    Keywords

    price framing; price dispersion; imperfect competition;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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