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A model of sales with differentiated and homogeneous goods

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  • Petkov, Vladimir

Abstract

This paper extends the classical model of sales (Varian, 1980; Rosenthal, 1980) by adding product differentiation. Instead of uninformed (i.e. loyal) customers, our setting features “variety seekers”. These consumers regard the products as imperfect substitutes. As in the original model, the firms also serve “bargain seekers” who buy the cheapest product. The discontinuous demand structure precludes any pure-strategy equilibria. We characterize the symmetric mixed-strategy equilibrium of the modified game. In contrast to the original model, the upper bound on prices and the equilibrium expected profits are decreasing in the mass of bargain seekers.

Suggested Citation

  • Petkov, Vladimir, 2018. "A model of sales with differentiated and homogeneous goods," Economics Letters, Elsevier, vol. 171(C), pages 214-217.
    • Handle: RePEc:eee:ecolet:v:171:y:2018:i:c:p:214-217
    DOI: 10.1016/j.econlet.2018.08.005
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    References listed on IDEAS

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    More about this item

    Keywords

    Product differentiation; Price dispersion;

    JEL classification:

    • 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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