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An Asymmetric Duopoly Model of Price Framing

Ioana Chioveanu ()

The B.E. Journal of Theoretical Economics, 2019, vol. 19, issue 2, 7

Abstract: This note considers an asymmetric duopoly model of price-frame competition in homogeneous product markets. The firms choose simultaneously prices and price formats, and frame differentiation limits price comparability leading to consumer confusion. Here, one firm is more salient than its rival and attracts a larger share of confused consumers. In duopoly equilibrium, the firms randomize on both prices and frames, make strictly positive profits, and pricing is frame-independent. However, the prominent firm sets a higher average price and charges the monopoly price with positive probability. Higher prominence boosts expected profit for both the industry and the salient firm but may harm the rival’s expected profit.

Keywords: price framing; price dispersion; imperfect competition (search for similar items in EconPapers)
JEL-codes: D03 D43 L13 (search for similar items in EconPapers)
Date: 2019
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