Existence Advertising, Price Competition, and Asymmetric Market Structure

B. Eaton (), Ian A. MacDonald and Laura Meriluoto

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: We examine a two stage duopoly game in which firms advertise their existence to consumers in stage 1 and compete in prices in stage 2. Whenever the advertising technology generates positive overlap in customer bases the equilib- rium for the stage 1 game is asymmetric in that one firm chooses to remain small in comparison to its competitor. For a specific random advertising technology we show that one firm will always be half as large as the other. No equilibrium in pure price strategies exists in the stage 2 game and as long as there is some overlap in customer bases the mixed strategy equilibrium is far from the Bertrand equilibrium.

Keywords: Existence advertising; price dispersion; Bertrand paradox; information; duopoly (search for similar items in EconPapers)
JEL-codes: D43 D80 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2008-10-15
New Economics Papers: this item is included in nep-bec, nep-com, nep-mic and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://repec.canterbury.ac.nz/cbt/econwp/0820.pdf (application/pdf)

Related works:
Journal Article: Existence Advertising, Price Competition and Asymmetric Market Structure (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:08/20

Access Statistics for this paper

More papers in Working Papers in Economics from University of Canterbury, Department of Economics and Finance Private Bag 4800, Christchurch, New Zealand. Contact information at EDIRC.
Bibliographic data for series maintained by Albert Yee ().