Competition in the Presence of Individual Demand Uncertainty

Marc Möller () and Makoto Watanabe

No 4490, CESifo Working Paper Series from CESifo

Abstract: This paper sheds light on an empirical controversy about the effect of competition on price discrimination. We introduce individual demand uncertainty into Hotelling’s model of product differentiation and show that firms offer advance purchase discounts. Consumers choose between an early (uninformed) purchase at a low price and a late (informed) purchase at a high price. Competing firms offer higher discounts in order to secure a large market share in advance. Our main result shows that whether competition has a positive or negative effect on price dispersion depends on the level of demand uncertainty and the degree of product differentiation.

Keywords: competition; price discrimination; individual demand uncertainty; advance purchase discounts (search for similar items in EconPapers)
JEL-codes: D43 D80 L13 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Competition in the presence of individual demand uncertainty (2016)
Working Paper: Competition in the Presence of Individual Demand Uncertainty (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4490

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