The Only Dance in Town: Unique Equilibrium in a Generalized Model of Price Competition

Johannes Johnen and David Ronayne

No 874, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: We study a canonical model of simultaneous price competition between firms thatWe study a canonical model of simultaneous price competition between firms thatsell a homogeneous good to consumers who are characterized by the number ofprices they are exogenously aware of. Our setting subsumes many employed in theliterature over the last several decades. We show there is a unique equilibrium ifand only if there exist some consumers who are aware of exactly two prices. Theequilibrium we derive is in symmetric mixed strategies. Furthermore, when thereare no consumers aware of exactly two prices, we show there is an uncountableinfinityof asymmetric equilibria in addition to the symmetric equilibrium. Ourresults show the paradigm generically produces a unique equilibrium. We also showthat the commonly-sought symmetric equilibrium (which also nests the textbookBertrand pure strategy equilibrium as a special case) is robust to perturbations inconsumer behavior, while the asymmetric equilibria are not. Revised March 2020.

Keywords: price competition; price dispersion; unique equilibrium (search for similar items in EconPapers)
JEL-codes: D43 L11 (search for similar items in EconPapers)
Date: 2020-04-07
New Economics Papers: this item is included in nep-com, nep-gth, nep-mic and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: The only Dance in Town: Unique Equilibrium in a Generalized Model of Price Competition (2021)
Working Paper: The only Dance in Town: Unique Equilibrium in a Generalized Model of Price Competition (2021)
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