Random Pricing: Bertrand Competition with Uncontested Consumers

Severin Lenhard ()
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Severin Lenhard: Universität St. Gallen

Review of Industrial Organization, 2025, vol. 67, issue 2, No 4, 208 pages

Abstract: Abstract Two firms offer a homogeneous product and compete in prices. Consumers are homogeneous yet differ in their access to the firms. Three groups exist: Consumers who have access to both firms and can compare prices; and consumers who can access only one of the two firms and are thus uncontested. The group sizes may differ: One firm’s uncontested consumer base may be zero. No pure strategy equilibrium exists. In the mixed equilibrium, firms randomize on the same continuum of prices; in expectation, the firm with the larger consumer base plays a higher price and has a higher expected demand. We study: the firms’ incentive to invest in demand; effects of price discrimination; and collusion. Moreover, we extend the model to more than two firms and discuss mergers.

Keywords: Price competition; Random pricing; Homogeneous products (search for similar items in EconPapers)
JEL-codes: D21 L11 L13 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11151-025-10013-5

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