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Price Competition when Product Quality is Uncertain

Author

Listed:
  • Isabel GRILO

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

  • Xavier WAUTHY

    (CEREC, facultés universitaires Saint-Louis, Bruxelles)

Abstract

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.

Suggested Citation

  • Isabel GRILO & Xavier WAUTHY, 2000. "Price Competition when Product Quality is Uncertain," Discussion Papers (REL - Recherches Economiques de Louvain) 2000043, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvre:2000043
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    File URL: http://sites.uclouvain.be/econ/DP/REL/2000043.pdf
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    References listed on IDEAS

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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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    Cited by:

    1. David Bardey, 2004. "A paradoxical risk aversion effect on the consumers' demand for quality," Recherches économiques de Louvain, De Boeck Université, vol. 70(1), pages 109-115.

    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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