Market learning and price-dispersion

Amparo Urbano and María Dolores Alepuz Domenech
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María Dolores Alepuz Domenech: Universitat de València

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: This paper analyzes how learning considerations may influence the pricing behavior of a duopoly facing demand uncertainty. We consider a symmetric duopoly game with product differentiation where firms have imperfect information about some parameters of the market demands. Firm learn about these parameters by observing market sales in the two markets. The central body of this paper consists in showing the conditions under which there exists price dispersion at the equilibrium in pure strategies. In particular, when both -product substitutes- firms experiment in each of the two markets and they have the same ability to make market signals more informative, they will price-disperse as an attempt to increase the informative content of these signals. In this way, a "sampling effect" may arise as the outcome of market learning behavior.

Keywords: Learning; experimentation; price-dispersion; asymmetric equilibria (search for similar items in EconPapers)
Pages: 68 pages
Date: 1994-07
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:1994-14

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