Price Competition Between an Expert and a Non-Expert

Jan Bouckaert and Hans Degryse

No 1905, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper characterizes price competition between an expert and a non-expert. In contrast with the expert, the non-expert’s repair technology is not always successful. Consumers visit the expert after experiencing an unsuccessful match at the non-expert. This re-entry affects the behaviour of both sellers. For low enough probability of successful repair at the non-expert, all consumers first visit the non-expert, and a ‘timid-pricing’ equilibrium results. If the non-expert’s repair technology performs well enough, it pays for some consumers to disregard the non-expert. They directly go to the expert’s shop, and an ‘aggressive-pricing’ equilibrium results. For intermediate values of the non-expert’s successful repair a ‘mixed-pricing’ equilibrium emerges where the expert randomizes over the monopoly price and some lower price.

Keywords: differentiation; Price Competition; Quality; re-entry (search for similar items in EconPapers)
JEL-codes: D43 L13 L15 (search for similar items in EconPapers)
Date: 1998-06
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Price competition between an expert and a non-expert (2000)
Working Paper: Price competition between an expert and a non-expert (1998)
Working Paper: Price competition between an expert and a non-expert (1998)
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