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Social learning and delay in a dynamic model of price competition

Masaki Aoyagi, Manaswini Bhalla () and Hikmet Gunay

Journal of Economic Theory, 2016, vol. 165, issue C, 565-600

Abstract: This paper studies dynamic price competition between two firms selling differentiated durable goods to two buyers whose valuations of the two goods depend on their own private type as well as that of the other buyer. We derive a key intertemporal property of the equilibrium prices and construct an equilibrium based on this property. We show that social learning reduces the equilibrium prices in the sense that when the buyers are more interdependent and hence have a stronger incentive to wait and see, the firms respond by lowering their period 1 prices. Interestingly, we find that this response by the firms along with the intertemporal property of the equilibrium prices implies that buyers delay their decisions less often when they become more interdependent.

Keywords: Dynamic pricing; Duopoly; Product differentiation; Durable good; Revenue management; Conspicuous consumption (search for similar items in EconPapers)
JEL-codes: C72 D82 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Social Learning and Delay in a Dynamic Model of Price Competition (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:165:y:2016:i:c:p:565-600

DOI: 10.1016/j.jet.2016.05.005

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