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Social learning and delay in a dynamic model of price competition


  • Aoyagi, Masaki
  • Bhalla, Manaswini
  • Gunay, Hikmet


This paper studies dynamic price competition between two firms selling differentiated durable goods to two buyers whose valuations of the two goods depend on their own private type as well as that of the other buyer. We derive a key intertemporal property of the equilibrium prices and construct an equilibrium based on this property. We show that social learning reduces the equilibrium prices in the sense that when the buyers are more interdependent and hence have a stronger incentive to wait and see, the firms respond by lowering their period 1 prices. Interestingly, we find that this response by the firms along with the intertemporal property of the equilibrium prices implies that buyers delay their decisions less often when they become more interdependent.

Suggested Citation

  • Aoyagi, Masaki & Bhalla, Manaswini & Gunay, Hikmet, 2016. "Social learning and delay in a dynamic model of price competition," Journal of Economic Theory, Elsevier, vol. 165(C), pages 565-600.
  • Handle: RePEc:eee:jetheo:v:165:y:2016:i:c:p:565-600 DOI: 10.1016/j.jet.2016.05.005

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    References listed on IDEAS

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    More about this item


    Dynamic pricing; Duopoly; Product differentiation; Durable good; Revenue management; Conspicuous consumption;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design


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