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Market learning and price-dispersion

  • Amparo Urbano Salvador

    (Universitat de València)

  • María Dolores Alepuz Domenech

    (Universitat de València)

This paper analyzes how learning considerations may influence the pricing behavior of a duopoly facing demand uncertainty. We consider a symmetric duopoly game with product differentiation where firms have imperfect information about some parameters of the market demands. Firm learn about these parameters by observing market sales in the two markets. The central body of this paper consists in showing the conditions under which there exists price dispersion at the equilibrium in pure strategies. In particular, when both -product substitutes- firms experiment in each of the two markets and they have the same ability to make market signals more informative, they will price-disperse as an attempt to increase the informative content of these signals. In this way, a "sampling effect" may arise as the outcome of market learning behavior.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-1994-14.pdf
File Function: Fisrt version / Primera version, 1994
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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 1994-14.

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Length: 68 pages
Date of creation: Jul 1994
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:1994-14
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