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Price Competition when Product Quality is Uncertain

  • Isabel GRILO

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))

  • Xavier WAUTHY

    (CEREC, facultés universitaires Saint-Louis, Bruxelles)

We consider a market where consumers differ in risk aversion. Two firms sell products of uncertain quality. We characterize the Nash equilibriura in prices and show that, due to consumers' heterogeneity, less reliable products are likely to coexist with more reliable ones in equilibrium. Moreover, choosing to increase the risk component is in some cases an equilibrium strategy.

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File URL: http://sites.uclouvain.be/econ/DP/REL/2000043.pdf
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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (REL - Recherches Economiques de Louvain) with number 2000043.

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Length: 24
Date of creation: 01 Dec 2000
Date of revision:
Handle: RePEc:ctl:louvre:2000043
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  1. Bouckaert, Jan & Degryse, Hans, 2000. "Price competition between an expert and a non-expert," International Journal of Industrial Organization, Elsevier, vol. 18(6), pages 901-923, August.
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