Oligopoly and Luce's Choice Axiom

Simon Anderson and André de Palma ()

Regional Science and Urban Economics, 2012, vol. 42, issue 6, 1053-1060

Abstract: We apply Luce's choice axiomatic framework to oligopoly pricing of quality differentiated goods. The demand system is a probabilistic comparison of surpluses across products. Zero demands arise naturally, in contrast to the related CES and Mixed Logit models. With asymmetric products, high mark-ups and high demands are driven by high quality-costs. The oligopoly price equilibrium delivers a simple surplus–split property. We reconcile the model with standard consumer theory by introducing income, and hence generate a representative consumer formulation, which has a quadratic form in a central case. We further introduce a preference representation based on the Gabszewicz–Thisse vertical quality formulation.

Keywords: Choice Axiom; Probabilistic choice models; Oligopoly; Pricing; Representative consumer (search for similar items in EconPapers)
JEL-codes: D11 D43 L13 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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Working Paper: Oligopoly and Luce's Choice Axiom (2012)
Working Paper: Oligopoly and Luce's Choice Axiom (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:42:y:2012:i:6:p:1053-1060

DOI: 10.1016/j.regsciurbeco.2011.10.002

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