Habit formation and oligopolistic competition

Alejandro Moreno ()

Estudios Económicos, 2012, vol. 27, issue 2, 379-400

Abstract: In this paper I analyze competition in markets with habit formation. I model a two-period game in which two firms enter a market sequentially. I find that the second firm's product is similar to the original one, but not exactly the same. The model also applies to competition in different markets that share a characteristic; for example, sweetness is a common characteristic of carbonated soft drinks and ice-cream, and consumption of a product in one market affects the preferences for products in the other market. I find that new firms produce products with similar characteristics not only to a product that has entered the same market, but to products that have entered other markets with common characteristics.

Keywords: habit formation; product differentiation; oligopolistic competition (search for similar items in EconPapers)
JEL-codes: D03 D43 L13 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:emx:esteco:v:27:y:2012:i:2:p:379-400

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