A model of sales with differentiated and homogeneous goods

Vladimir Petkov

Economics Letters, 2018, vol. 171, issue C, 214-217

Abstract: This paper extends the classical model of sales (Varian, 1980; Rosenthal, 1980) by adding product differentiation. Instead of uninformed (i.e. loyal) customers, our setting features “variety seekers”. These consumers regard the products as imperfect substitutes. As in the original model, the firms also serve “bargain seekers” who buy the cheapest product. The discontinuous demand structure precludes any pure-strategy equilibria. We characterize the symmetric mixed-strategy equilibrium of the modified game. In contrast to the original model, the upper bound on prices and the equilibrium expected profits are decreasing in the mass of bargain seekers.

Keywords: Product differentiation; Price dispersion (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:171:y:2018:i:c:p:214-217

DOI: 10.1016/j.econlet.2018.08.005

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