Modeling Competition over Multiple Variables under Limited Consumer Awareness

Samir Mamadehussene and Francisco Silva

Journal of Industrial Economics, 2023, vol. 71, issue 1, 192-211

Abstract: When analyzing firm competition over two strategic variables (e.g., quality and price), it is important to decide whether to model it as a one‐stage or a two‐stage game. Our analysis focuses on markets in which consumers are not aware of all alternatives. We find that, if consumers are sufficiently unaware, both the one‐stage and the two‐stage equilibria of the game that explicitly models limited awareness are close to the one‐stage equilibrium of the standard game, which assumes full awareness. Therefore, markets in which consumers have limited awareness can be studied with standard models, provided that the one‐stage game is analyzed.

Date: 2023
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