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Price competition between an expert and a non-expert

  • Bouckaert, Jan
  • Degryse, Hans

This paper characterizes price competition between an expert and a non-expert. In contrast with the expert, the non-expert’s repair technology is not always successful. Consumers visit the expert after experiencing an unsuccessful match at the non-expert. This re-entry affects the behaviour of both sellers. For low enough probability of successful repair at the non-expert, all consumers first visit the non-expert, and a ‘timid-pricing’ equilibrium results. If the non-expert’s repair technology performs well enough, it pays for some consumers to disregard the non-expert. They directly go to the expert’s shop, and an ‘aggressive-pricing’ equilibrium results. For intermediate values of the non-expert’s successful repair a ‘mixed-pricing’ equilibrium emerges where the expert randomizes over the monopoly price and some lower price.

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File URL: http://www.sciencedirect.com/science/article/B6V8P-40B84K2-4/2/7ebdb27fbe0b5d9a9ccfc1ab97223521
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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 18 (2000)
Issue (Month): 6 (August)
Pages: 901-923

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Handle: RePEc:eee:indorg:v:18:y:2000:i:6:p:901-923
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Asher Wolinsky, 1991. "Competition in a Market for Informed Experts' Services," Discussion Papers 959, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Winand Emons, 1994. "Credence Goods and Fraudulent Experts," Diskussionsschriften dp9402, Universitaet Bern, Departement Volkswirtschaft.
  3. Che, Y.K., 1995. "Customer Return Policies for Experience Goods," Working papers 9509, Wisconsin Madison - Social Systems.
  4. Ailsa Röell & Marco Pagano, 1991. "Auction and Dealership Markets: What is the Difference?," FMG Discussion Papers dp125, Financial Markets Group.
  5. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  6. Krugman, Paul R., 1989. "Industrial organization and international trade," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 20, pages 1179-1223 Elsevier.
  7. Meurer, Michael & Stahl, Dale II, 1994. "Informative advertising and product match," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 1-19, March.
  8. Krishna, Kala, 1989. "Trade restrictions as facilitating practices," Journal of International Economics, Elsevier, vol. 26(3-4), pages 251-270, May.
  9. Rajiv Lal & Carmen Matutes, 1989. "Price Competition in Multimarket Duopolies," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 516-537, Winter.
  10. Taylor, Curtis R, 1995. "The Economics of Breakdowns, Checkups, and Cures," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 53-74, February.
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