Price competition with differentiated goods and incomplete product awareness

Charlene Cosandier (), Filomena Garcia and Malgorzata Knauff
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Charlene Cosandier: University of Iowa

Economic Theory, 2018, vol. 66, issue 3, No 5, 705 pages

Abstract: Abstract We investigate the effects of increased transparency on prices in the Bertrand duopoly model. Market transparency is defined as the proportion of consumers that are fully informed about the market and thus not captive to one firm. We consider two main cases of strategic interaction, prices as strategic complements and as strategic substitutes. For the former class of games, conventional wisdom concerning prices is confirmed, in that they decrease with market transparency. Consumer welfare always increases with higher transparency but changes in firms’ profits are ambiguous. For the latter class of games, an increase in market transparency may lead to an increase in one of the prices, which implies ambiguous effects on both consumer welfare and firms’ profits. An example with linear demand for differentiated products is also investigated. The results of the paper shed light on the mixed evidence concerning the effects of the Internet on retail markets and may illuminate some of the ongoing related public policy debates.

Keywords: Bertrand duopoly; Market transparency; Consumers awareness; Supermodular games; Strategic complements/substitutes (search for similar items in EconPapers)
JEL-codes: C72 D43 L13 L15 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (16)

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DOI: 10.1007/s00199-017-1050-3

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