To Differentiate or Not to Differentiate: A Question when Some Consumers Are Loyal

Yan Meng

Theoretical and Applied Economics, 2010, vol. 10(551), issue 10(551), 83-92

Abstract: I analyze a duopoly that competes first in product characteristics and then in prices. I show that when there exist consumers that are loyal to specific brands with no regard for product characteristics, the second-stage price game doesn’t have a pure-strategy equilibrium or symmetric mixed-strategy equilibrium and the firms choose to maximize their product differentiation in the first stage, contrary to what is usually assumed in the price dispersion literature.

Keywords: pricing; product differentiation; price competition. (search for similar items in EconPapers)
Date: 2010
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