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Price Competition When Consumers Are Uncertain about Which Firm Sells Which Quality

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  • Gabszewicz, Jean J
  • Grilo, Isabel
Abstract
In this paper we analyze the properties of price equilibria in a duopoly market where firms sell vertically differentiated products, consumers being uncertain about which firm sells which quality. Both existence and properties of price equilibria are characterized by the beliefs of the consumers' population about the distribution of quality between firms. Copyright 1992 by MIT Press.

Suggested Citation

  • Gabszewicz, Jean J & Grilo, Isabel, 1992. "Price Competition When Consumers Are Uncertain about Which Firm Sells Which Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 629-650, Winter.
    • Handle: RePEc:bla:jemstr:v:1:y:1992:i:4:p:629-50
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    References listed on IDEAS

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    1. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 493-510.
    2. Gene M. Grossman & Henrik Horn, 1988. "Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(4), pages 767-787.
    3. Carl Shapiro, 1982. "Consumer Information, Product Quality, and Seller Reputation," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 20-35, Spring.
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    5. Paul Klemperer, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 375-394.
    6. Stahl, Konrad, 1982. "Differentiated Products, Consumer Search, and Locational Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 31(1-2), pages 97-113, September.
    7. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
    8. Carlson, John A & McAfee, R Preston, 1983. "Discrete Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 480-493, June.
    9. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    10. Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
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    Cited by:

    1. Paulson Gjerde, Kathy A. & Slotnick, Susan A., 2004. "Quality and reputation: The effects of external and internal factors over time," International Journal of Production Economics, Elsevier, vol. 89(1), pages 1-20, May.
    2. Olivier Bonroy & Christos Constantatos, 2008. "On the use of labels in credence goods markets," Journal of Regulatory Economics, Springer, vol. 33(3), pages 237-252, June.
    3. Mark N. Hertzendorf & Per Baltzer Overgaard, 2001. "Price Competition and Advertising Signals: Signaling by Competing Senders," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(4), pages 621-662, December.
    4. Moscarini, Giuseppe & Ottaviani, Marco, 2001. "Price Competition for an Informed Buyer," Journal of Economic Theory, Elsevier, vol. 101(2), pages 457-493, December.
    5. Olivier Bonroy & Christos Constantatos, 2015. "On the Economics of Labels: How Their Introduction Affects the Functioning of Markets and the Welfare of All Participants," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(1), pages 239-259.
    6. Yukiko Hirao, 2017. "Firms’ Information Acquisition with Heterogeneous Consumers and Trend," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(3), pages 323-344, May.
    7. John Crespi & Stéphan Marette, 2003. "“Does Contain” vs. “Does Not Contain”: Does it Matter which GMO Label is Used?," European Journal of Law and Economics, Springer, vol. 16(3), pages 327-344, November.
    8. Koji Domon & Alessandro Melcarne & Giovanni B. Ramello, 2022. "Fake & original: the case of Japanese food in Southeast Asian countries," European Journal of Law and Economics, Springer, vol. 54(2), pages 327-347, October.
    9. repec:gbl:wpaper:2013-01 is not listed on IDEAS
    10. Bonroy, Olivier & Constantatos, Christos, 2003. "Consumer Uncertainty about which Firm Sells the High Quality: on the Slow Penetration of Some Credence Goods," Cahiers de recherche 0307, GREEN.
    11. Alberto Cavaliere & Giovanni Crea, 2016. "Vertical Differentiation With Consumers Misperceptions And Information Disparities," DEM Working Papers Series 122, University of Pavia, Department of Economics and Management.
    12. Gerhard O. Orosel & Klaus G. Zauner, 2011. "Quality Diversity and Prices in Markets for Experience Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(3), pages 709-738, September.
    13. Dughera, Stefano & Giraudo, Marco, 2020. "Privacy Rights in Online Interactions and Litigation Dynamics: a Social Custom View," Department of Economics and Statistics Cognetti de Martiis. Working Papers 202003, University of Turin.
    14. GABSZEWICZ, Jean J. & RESENDE, Joana, 2011. "Credence, goods and product differentiation," LIDAM Discussion Papers CORE 2011048, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    15. Gabszewicz, Jean J. & Resende, Joana, 2012. "Differentiated credence goods and price competition," Information Economics and Policy, Elsevier, vol. 24(3), pages 277-287.
    16. Alberto Cavaliere & Giovanni Crea, 2017. "Vertical Differentiation With Optimistic Misperceptions And Information Disparities," DEM Working Papers Series 137, University of Pavia, Department of Economics and Management.
    17. Cheng, Yi-Ling, 2014. "Vertical product differentiation under demand uncertainty," Economic Modelling, Elsevier, vol. 36(C), pages 51-57.
    18. Olivier Bonroy & Christos Constantatos, 2004. "Biens de confiance et concurrence en prix. Quand aucun producteur ne souhaite l'introduction d'un label," Revue économique, Presses de Sciences-Po, vol. 55(3), pages 527-532.
    19. Galasso, Alberto, 2004. "Subjective price search and public intervention," Research in Economics, Elsevier, vol. 58(2), pages 159-173, June.
    20. Gerhard Orosel & Klaus G. Zauner, 2004. "Vertical Product Differentiation When Quality is Unobservable to Buyers," CESifo Working Paper Series 1271, CESifo.

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