Market Share Dynamics in a Duopoly Model with Word-of-Mouth Communication

Eugen Kovac and Robert Schmidt

VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association

Abstract: We analyze dynamic price competition in a homogeneous goods duopoly, where consumers exchange information via word-of-mouth communication. A fraction of consumers, who do not learn any new information, remain locked-in at their previous supplier in each period. We analyze Markov perfect equilibria in which firms use mixed pricing strategies. Market share dynamics are driven by the endogenous price dispersion. Depending on the parameters, we obtain different 'classes' of dynamics. When firms are impatient, there is a tendency towards equal market shares. When firms are patient, there are extended intervals of market dominance, interrupted by sudden changes in the leadership position.

JEL-codes: C73 D83 L11 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-com, nep-ind and nep-mkt
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Journal Article: Market share dynamics in a duopoly model with word-of-mouth communication (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc13:79994

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