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Oligopolistic competition in price and quality

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  • Dubovik, Andrei
  • Janssen, Maarten C.W.

Abstract

We consider an oligopolistic market where firms compete in price and quality and where consumers have heterogeneous information: some consumers know both the prices, and quality of the products offered, some know only the prices, and some know neither. We show that if there are sufficiently many uninformed consumers, then there exists a unique equilibrium where price is a perfect indicator of quality. This equilibrium is characterized by dispersion and Pareto-inefficiency of the price/quality offers, where better price/quality combinations are associated with lower prices.

Suggested Citation

  • Dubovik, Andrei & Janssen, Maarten C.W., 2012. "Oligopolistic competition in price and quality," Games and Economic Behavior, Elsevier, vol. 75(1), pages 120-138.
  • Handle: RePEc:eee:gamebe:v:75:y:2012:i:1:p:120-138 DOI: 10.1016/j.geb.2011.09.005
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    References listed on IDEAS

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    Cited by:

    1. Dubovik, Andrei & Janssen, Maarten C.W., 2012. "Oligopolistic competition in price and quality," Games and Economic Behavior, Elsevier, vol. 75(1), pages 120-138.
    2. Sandro Shelegia & Chris M. Wilson, 2016. "A generalized model of sales," Economics Working Papers 1541, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Sandro Shelegia & Chris M Wilson, 2014. "A Utility-Based Model of Sales with Informative Advertising," Discussion Paper Series 2014_09, Department of Economics, Loughborough University, revised Oct 2014.
    4. Sabyasachi Das, 2016. "Certification Under Oligopolistic Competition," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 251-271, September.
    5. Sandro Shelegia & Chris M. Wilson, 2016. "A Generalized Model of Sales," Working Papers 934, Barcelona Graduate School of Economics.
    6. Alexander Karpov, 2016. "Health care inequality, patient mobility and welfare," Economics Bulletin, AccessEcon, vol. 36(2), pages 1000-1009.
    7. Mark Armstrong, 2015. "Search and Ripoff Externalities," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 273-302, November.
    8. Qu, Chenrui & Wang, Grace W.Y. & Zeng, Qingcheng, 2017. "Modelling port subsidy policies considering pricing decisions of feeder carriers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 99(C), pages 115-133.
    9. Shelegia, Sandro & Wilson, Chris, 2016. "A Generalized Model of Sales," EconStor Preprints 147411, ZBW - German National Library of Economics.
    10. Anna Nagurney & Dong Li, 2014. "A Dynamic Network Oligopoly Model with Transportation Costs, Product Differentiation, and Quality Competition," Computational Economics, Springer;Society for Computational Economics, vol. 44(2), pages 201-229, August.

    More about this item

    Keywords

    Oligopoly; Competition; Price; Quality; Imperfect information; Signaling;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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