All-pay competition with captive consumers

Renaud Foucart and Jana Friedrichsen

International Journal of Industrial Organization, 2021, vol. 75, issue C

Abstract: We study a game in which two firms compete in quality to serve a market consisting of consumers with different initial consideration sets. If both firms invest below a certain threshold, they only compete for those consumers already aware of their existence. Above this threshold, a firm is visible to all and the highest investment attracts all consumers. On the one hand, the existence of initially captive consumers introduces an anti-competitive element: holding fixed the behavior of its rival, a firm with a larger captive segment enjoys a higher payoff from not investing at all. On the other hand, the fact that a firm’s initially captive consumers can still be attracted by very high quality introduces a pro-competitive element: a high investment becomes more profitable for the underdog when the captive segment of the dominant firm increases. The share of initially captive consumers therefore has a non-monotonic effect on the investment levels of both firms and on consumer surplus. We relate our findings to competition cases in digital markets.

Keywords: Consideration set; Regulation; All-pay auction; Endogenous prize; Digital markets (search for similar items in EconPapers)
JEL-codes: D4 L1 L4 (search for similar items in EconPapers)
Date: 2021
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Journal Article: All-pay competition with captive consumers (2021)
Working Paper: All-Pay Competition with Captive Consumers (2021)
Working Paper: All-pay competition with captive consumers (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:75:y:2021:i:c:s0167718721000023

DOI: 10.1016/j.ijindorg.2021.102709

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