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Buyers' decision and price competition

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  • Paolo Buccirossi

Abstract

This paper describes a price game in which buyers’ decisions about how much and where to buy are based on different information and/or preferences. Such consumers’ behavior is likely when demand comes from public agencies and state-owned firms. Consumers in this case are said to be uninformed. The model analyzes the price Nash equilibrium reached for any possible proportion of uninformed demand. In equilibrium there is always a positive probability that uninformed consumers pay a price above the monopoly level. For large proportions of uninformed consumers all firms charge a price above the monopoly level. The model also points out that the intense competition associated with Bertrand-like settings depends largely on the assumptions about consumers’ behavior.

Suggested Citation

  • Paolo Buccirossi, 1999. "Buyers' decision and price competition," Working Papers in Public Economics 36, Department of Economics and Law, Sapienza University of Rome.
    • Handle: RePEc:sap:wpaper:wp36
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    References listed on IDEAS

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    1. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    2. Stiglitz, Joseph E, 1987. "Competition and the Number of Firms in a Market: Are Duopolies More Competitive than Atomistic Markets?," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1041-1061, October.
    3. To, Theodore, 1996. "Multi-period Competition with Switching Costs: An Overlapping Generations Formulation," Journal of Industrial Economics, Wiley Blackwell, vol. 44(1), pages 81-87, March.
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    JEL classification:

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

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