- DUOPOLY PRICE COMMUNICATION

José J. Sempere Monerris (), Amparo Urbano and María Dolores Alepuz
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José J. Sempere Monerris: Universitat de València
María Dolores Alepuz: Universitat de València
Authors registered in the RePEc Author Service: José J. Sempere-Monerris

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

Abstract: We investigate the role of price communication in imperfect information environments by setting up a dynamic differentiated duopoly where actions are not observable and where firms decide, before pricing, whether to communicate their choices to the rivals. When firms play simultaneously in the pricing stages, communication across them is a dominant strategy allowing firms to coordinate prices, thus reducing competition. However, when communication takes place within pricing stages, this meaning that firms are given the opportunity to choose roles, the above firms coordination in prices is mitigated. This is because of the existence of a second mover advantage effect. Communication by the leader acts as a pre-commitment device to a price umbrella that the follower will undercut. As a result, we end up with a more competitive situation although price levels will not go down to those without communication.

Keywords: commitment; price communication (search for similar items in EconPapers)
Pages: 40 pages
Date: 1998-12
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:1998-26

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