Asymmetric Price Competition with Price Inertia

Arthur Fishman ()

RAND Journal of Economics, 1994, vol. 25, issue 4, 608-618

Abstract: In this article, I analyze price competition under price inertia. After setting prices, sellers are unable to change them for a period of predetermined length, but may delay price commitments indefinitely. Although most consumers consider the firms' products to be perfect substitutes, an arbitrarily small number of "captive" consumers display brand loyalty to a particular firm, even when the competing brand is cheaper. In this article, I show that a firm with even slightly fewer captive consumers than its competitor achieves monopoly power over all remaining consumers.

Date: 1994
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