All-Pay Oligopolies: Price Competition With Unobservable Inventory Choices

Joao Montez and Nicolas Schutz

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We study a class of games where stores source unobservable inventories in advance, and then simultaneously set prices. Our framework allows for firm asymmetries, heterogeneous consumer tastes, endogenous consumer information through advertising, and salvage values for unsold units. The payoff structure relates to a complete-information all-pay contest with outside options, non-monotonic winning and losing functions, and conditional investments. In the generically unique equilibrium, stores randomize their price choice and, conditional on that choice, serve all their targeted demand—thus, some inventories may remain unsold. As inventory costs become fully recoverable, the equilibrium price distribution converges to an equilibrium of the associated Bertrand game (where firms first choose prices and then produce to order). This suggests that with production in advance, the choice between a Cournot analysis and a Bertrand-type analysis, as properly generalized in this paper, should depend on whether or not stores observe rivals’ inventories before setting prices.

Keywords: Oligopoly; inventories; production in advance; all-pay contests; Bertrand convergence (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Pages: 56
Date: 2018-05
New Economics Papers: this item is included in nep-com and nep-gth
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: All-Pay Oligopolies: Price Competition with Unobservable Inventory Choices (2021)
Working Paper: All-Pay Oligopolies: Price Competition with Unobservable Inventory Choices (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2018_020

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