Existence Advertising, Price Competition, and Asymmetric Market Structure
We examine a two stage duopoly game in which firms advertise their existence to consumers in stage 1 and compete in prices in stage 2. Whenever the advertising technology generates positive overlap in customer bases the equilib- rium for the stage 1 game is asymmetric in that one firm chooses to remain small in comparison to its competitor. For a specific random advertising technology we show that one firm will always be half as large as the other. No equilibrium in pure price strategies exists in the stage 2 game and as long as there is some overlap in customer bases the mixed strategy equilibrium is far from the Bertrand equilibrium.
|Date of creation:||15 Oct 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 64 3 369 3123 (Administrator)
Fax: 64 3 364 2635
Web page: http://www.econ.canterbury.ac.nz
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jaskold Gabszewicz, J. & Thisse, J. -F., 1980. "Entry (and exit) in a differentiated industry," Journal of Economic Theory, Elsevier, vol. 22(2), pages 327-338, April.
- Rothschild, Michael, 1973. "Models of Market Organization with Imperfect Information: A Survey," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1283-1308, Nov.-Dec..
- Alan T. Sorensen, 2000. "Equilibrium Price Dispersion in Retail Markets for Prescription Drugs," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 833-862, August.
- Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
- Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
- Gabszewicz, Jean Jaskold & Thisse, Jacques-Francois, 1986. "On the Nature of Competition with Differentiated Products," Economic Journal, Royal Economic Society, vol. 96(381), pages 160-72, March.
- Robert, Jacques & Stahl, Dale O, II, 1993. "Informative Price Advertising in a Sequential Search Model," Econometrica, Econometric Society, vol. 61(3), pages 657-86, May.
- Michael R. Baye & John Morgan & Patrick Scholten, 2004.
"Price Dispersion in the Small and in the Large: Evidence from an Internet Price Comparison Site,"
2004-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
- Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Price Dispersion In The Small And In The Large: Evidence From An Internet Price Comparison Site," Journal of Industrial Economics, Wiley Blackwell, vol. 52(4), pages 463-496, December.
- Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
- Bester, Helmut & Petrakis, Emmanuel, 1995. "Price competition and advertising in oligopoly," European Economic Review, Elsevier, vol. 39(6), pages 1075-1088, June.
- George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
- Saul Lach, 2002.
"Existence And Persistence Of Price Dispersion: An Empirical Analysis,"
The Review of Economics and Statistics,
MIT Press, vol. 84(3), pages 433-444, August.
- Saul Lach, 2002. "Existence and Persistence of Price Dispersion: an Empirical Analysis," NBER Working Papers 8737, National Bureau of Economic Research, Inc.
- Pratt, John W & Wise, David A & Zeckhauser, Richard, 1979. "Price Differences in Almost Competitive Markets," The Quarterly Journal of Economics, MIT Press, vol. 93(2), pages 189-211, May.
- Narasimhan, Chakravarthi, 1988. "Competitive Promotional Strategies," The Journal of Business, University of Chicago Press, vol. 61(4), pages 427-49, October.
- Stiglitz, Joseph E., 1989. "Imperfect information in the product market," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 13, pages 769-847 Elsevier.
When requesting a correction, please mention this item's handle: RePEc:cbt:econwp:08/20. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Albert Yee)
If references are entirely missing, you can add them using this form.