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Price Competition when Product Quality is Uncertain

Isabel Grilo and Xavier Wauthy
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Isabel Grilo: UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)

No 2000043, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: We consider a market where consumers differ in risk aversion. Two firms sell products of uncertain quality. We characterize the Nash equilibriura in prices and show that, due to consumers' heterogeneity, less reliable products are likely to coexist with more reliable ones in equilibrium. Moreover, choosing to increase the risk component is in some cases an equilibrium strategy.

JEL-codes: L13 (search for similar items in EconPapers)
Pages: 24
Date: 2000-12-01
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Working Paper: Price competition when product quality is uncertain (2000)
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