Market share dynamics in a duopoly model with word-of-mouth communication

Eugen Kovac and Robert Schmidt

Games and Economic Behavior, 2014, vol. 83, issue C, 178-206

Abstract: We analyze dynamic price competition in a homogeneous goods duopoly, where consumers exchange information via word-of-mouth communication. A fraction of consumers, who do not learn any new information, remain locked-in at their previous supplier in each period. We analyze Markov perfect equilibria in which firms use mixed pricing strategies. Market share dynamics are driven by the endogenous price dispersion. Depending on the parameters, we obtain different ‘classes’ of dynamics. When firms are impatient, there is a tendency towards equal market shares. When firms are patient, there are extended intervals of market dominance, interrupted by sudden changes in the leadership position.

Keywords: Dynamic duopoly; Homogeneous goods; Price competition; Consumer lock-in; Mixed pricing; Markov perfect equilibrium (search for similar items in EconPapers)
JEL-codes: C73 D83 L11 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Market Share Dynamics in a Duopoly Model with Word-of-Mouth Communication (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:83:y:2014:i:c:p:178-206

DOI: 10.1016/j.geb.2013.11.010

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