Price competition in segmented industries
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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- Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
- Davidson, Carl & Deneckere, Raymond J, 1990. "Excess Capacity and Collusion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 521-541, August.
- Basu, Kaushik & Bell, Clive, 1991. "Fragmented duopoly : Theory and applications to backward agriculture," Journal of Development Economics, Elsevier, vol. 36(2), pages 145-165, October.
- B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
- Spence, A Michael, 1977. "Nonprice Competition," American Economic Review, American Economic Association, vol. 67(1), pages 255-259, February.
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