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Patterns of Price Competition and the Structure of Consumer Choice

Author

Listed:
  • Armstrong, Mark
  • Vickers, John

Abstract

We explore patterns of price competition in an oligopoly where consumers vary in the set of suppliers they consider for their purchase. In the case of "nested reach" we find equilibria, unlike those in existing models, in which price competition is segmented: small firms offer only low prices and large firms only offer high prices. We characterize equilibria in the three-firm case using correlation measures of interaction between pairs of firms. We show how entry, merger and market expansion can affect patterns of price competition in novel ways.

Suggested Citation

  • Armstrong, Mark & Vickers, John, 2020. "Patterns of Price Competition and the Structure of Consumer Choice," MPRA Paper 98346, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:98346
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    File URL: https://mpra.ub.uni-muenchen.de/98346/1/MPRA_paper_98346.pdf
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    More about this item

    Keywords

    Bertrand competition; price dispersion; consideration sets; mixed strategies;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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