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Patterns of Competitive Interaction

Mark Armstrong () and John Vickers ()

No 13821, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We explore patterns of competitive interaction by studying mixed-strategy equilibrium pricing in oligopoly settings where consumers vary in the set of suppliers they consider for their purchase. In the case of "nested reach" we find equilibria, unlike those in existing models, in which price competition is segmented: small firms offer only low prices and large firms only offer high prices. We characterize equilibria in the three-firm case using correlation measures of competition between pairs of firms. We then contrast them with equilibria in the parallel model with capacity constraints. A theme of the analysis is how patterns of consumer consideration matter for competitive outcomes.

Keywords: Bertrand-Edgeworth competition; Captive customers; Consideration sets; Mixed strategies; price dispersion (search for similar items in EconPapers)
JEL-codes: D43 D83 L11 L13 L15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-gth
Date: 2019-06
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