Existence Advertising, Price Competition and Asymmetric Market Structure

B. Eaton (), MacDonald Ian A. and Laura Meriluoto
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MacDonald Ian A.: Lincoln University, ian.macdonald@lincoln.ac.nz

The B.E. Journal of Theoretical Economics, 2010, vol. 10, issue 1, 29

Abstract: We examine a two-stage duopoly game in which firms advertise their existence to consumers in stage 1 and compete in prices in stage 2. Whenever the advertising technology generates positive overlap in customer bases, the equilibrium for the stage-1 game is asymmetric in that one firm chooses to remain small in comparison to its competitor. For a specific random advertising technology, we show that one firm will always be half as large as the other. No pure-strategy price equilibrium exists in the stage-2 game, and as long as there is some overlap in customer bases, the mixed-strategy price equilibrium does not converge to the Bertrand equilibrium.

Keywords: existence advertising; price dispersion; Bertrand equilibrium; duopoly (search for similar items in EconPapers)
Date: 2010
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Working Paper: Existence Advertising, Price Competition, and Asymmetric Market Structure (2008)
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DOI: 10.2202/1935-1704.1687

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