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Price competition in segmented industries

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Abstract

Repeated interaction between duopolists in a segmented industry is considered. The industry is fragmented into two separate segments. The duopolists compete in prices and segment choice, assuming that pricing strategies are completely flexible while segment choice is irreversible. Initially the two firms are located in different segments of the market, but they can choose to extend their operation to the other segment, operating in the whole industry. It is shown that there exists an equilibrium involving segment location and collusion in prices. The equilibrium path is further restricted by the magnitude of the fixed cost of entering the other segment, and by refinements on the equilibrium concept. Finally, the implications of the irreversibility of the entry decision are analyzed.
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  • Walter Garcia Fontes, 1993. "Price competition in segmented industries," Economics Working Papers 34, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:34
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    1. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
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    5. Spence, A Michael, 1977. "Nonprice Competition," American Economic Review, American Economic Association, vol. 67(1), pages 255-259, February.
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