Nonlinear pricing in oligopoly: how brand preferences shape market outcomes

Renato Gomes, Jean-Marie Lozachmeur and Lucas Maestri
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Renato Gomes: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique, UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse
Jean-Marie Lozachmeur: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique, UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse
Lucas Maestri: Getulio Vargas Foundation = Fundação Getulio Vargas

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Abstract: We study oligopolistic competition by firms practicing second-degree price discrimination. In line with the literature on demand estimation, our theory allows consumers' propensity to switch brands to vary with tastes for product quality. If low-type consumers are sufficiently more (respectively, less) prone to switch brands than are high types, (i) quality provision is inefficiently low at the bottom (respectively, high at the top) of the product line, and (ii) informational rents are positive (respectively, negative) for high types and negative (respectively, positive) for low types. Interestingly, we show that an increase in the number of competing firms may decrease welfare (by tightening incentive constraints), so much so that monopoly may be welfare superior to oligopoly. Pure-strategy equilibria fail to exist, resulting in price-quality dispersion across firms, whenever the propensity to switch brands is sufficiently different across consumers types.

Keywords: Asymmetric information; Brand preferences; Competition; Price discrimination; Price dispersion (search for similar items in EconPapers)
Date: 2026-06-25
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Published in RAND Journal of Economics, 2026, ⟨10.1111/1756-2171.70061⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05691137

DOI: 10.1111/1756-2171.70061

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