Existence Advertising, Price Competition, and Asymmetric Market Structure

B. Curtis Eaton (), Ian MacDonald and Laura Meriluoto ()

No 2008-10, Working Papers from Department of Economics, University of Calgary

Abstract: We examine a duopoly pricing game where some customers know of no firms, others know of only one firm, and some know of both firms. Firms have constant and identical marginal costs, sell homogenous goods and choose prices simultaneously. Customers observe the prices of the firms that are known to them. We show that there is no equilibrium in pure price strategies for this game. We find a mixed strategy equilibrium, and show that it has intuitively appealing comparative static properties. We then examine the two stage game in which firms advertise their existence in stage 1 to create their customer bases, and in stage 2 play the pricing game described above. The equilibrium to the two stage game is asymmetric, and far from the Bertrand equilibrium.

Keywords: Existence advertising; price dispersion; Bertrand paradox; information; duopoly (search for similar items in EconPapers)
JEL-codes: D43 D80 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-mic and nep-mkt
Date: 2008-02-01, Revised 2008-02-13
View list of references

Downloads: (external link)
http://econ.ucalgary.ca/sites/econ.ucalgary.ca/fil ... submission080128.pdf (application/pdf)

Related works:
Working Paper: Existence Advertising, Price Competition, and Asymmetric Market Structure (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:clg:wpaper:2008-10

Access Statistics for this paper

More papers in Working Papers from Department of Economics, University of Calgary
Contact information at EDIRC.
Series data maintained by May Ives ().