Dynamic competition with consumer inertia

Erik Pot, János Flesch, Ronald Peeters and Dries Vermeulen

Journal of Mathematical Economics, 2013, vol. 49, issue 5, 355-366

Abstract: We study a framework where two duopolists compete repeatedly in prices and where chosen prices potentially affect future market shares, but certainly do not affect current sales. This assumption of consumer inertia causes (noncooperative) coordination on high prices only to be possible as an equilibrium for low values of the discount factor. High discount factors increase opportunism and aggressiveness of competition to such an extent that high prices are no longer sustainable as an equilibrium outcome. Moreover, we find that both monopolization and enduring market share and price fluctuations (price wars) can be equilibrium path phenomena without requiring exogenous shocks in market or firm characteristics.

Keywords: Dynamic duopolistic competition; Consumer inertia; Endogenous market shares; Monopolization (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Dynamic competition with consumer inertia (2011)
Working Paper: Dynamic competition with consumer inertia (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:49:y:2013:i:5:p:355-366

DOI: 10.1016/j.jmateco.2013.07.004

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