All-Pay Oligopolies: Price Competition with Unobservable Inventory Choices

Joao Montez and Nicolas Schutz

No 12963, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study a class of games where stores source unobservable inventories in advance, and then simultaneously set prices. Our framework allows for firm asymmetries, heterogeneity in consumer tastes, endogenous consumer information through advertising, and salvage values for unsold units. The payoff structure relates to a complete-information all-pay contest with outside options, non-monotonic winning and losing functions, and conditional investments. In the generically unique equilibrium, stores randomize their price choice and, conditional on that choice, serve all their targeted demand---thus, some inventories may remain unsold. As inventory costs become fully recoverable, the equilibrium price distribution converges to an equilibrium of the associated Bertrand game (where firms first choose prices and then produce to order). This suggests that with production in advance, the choice between a Cournot analysis and a Bertrand-type analysis, as properly generalized in this paper, should depend on whether or not stores observe rivals' inventories before setting prices.

Keywords: Oligopoly; Inventories; Production in advance; All-pay contests; Bertrand convergence (search for similar items in EconPapers)
JEL-codes: L13 (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: All-Pay Oligopolies: Price Competition with Unobservable Inventory Choices (2021)
Working Paper: All-Pay Oligopolies: Price Competition With Unobservable Inventory Choices (2018)
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