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Patterns of competitive interaction

Author

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  • armstrong, Mark
  • Vickers, John
Abstract
We explore patterns of price competition in an oligopoly where consumers vary in the set of firms they consider for their purchase and buy from the lowest-priced firm they consider. We study a pattern of consideration, termed "symmetric interactions", that generalises models used in existing work (duopoly, symmetric firms, and firms with independent reach). Within this class, equilibrium profits are proportional to a firm's reach, firms with a larger reach set higher average prices, and a reduction in the number of firms (either by exit or by merger) harms consumers. We go on to study patterns of consideration with asymmetric interactions. In situations with disjoint reach and with nested reach we find equilibria in which price competition is "duopolistic": only two firms compete within each price range. We characterize equilibria in the three-firm case, and show how entry and merger can affect patterns of price competition in novel ways.

Suggested Citation

  • armstrong, Mark & Vickers, John, 2020. "Patterns of competitive interaction," MPRA Paper 102789, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:102789
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    Cited by:

    1. Vickers, John, 2021. "Competition for imperfect consumers," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    2. Chioveanu, Ioana, 2024. "Consumer data and price discrimination by consideration sets," Economics Letters, Elsevier, vol. 236(C).
    3. Heski Bar-Isaac & Sandro Shelegia, 2023. "Search, Showrooming, and Retailer Variety," Marketing Science, INFORMS, vol. 42(2), pages 251-270, March.
    4. Rafael R. Guthmann, 2024. "Price dispersion in dynamic competition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 78(4), pages 1203-1232, December.
    5. Saur, Marc P. & Schlatterer, Markus G. & Schmitt, Stefanie Y., 2022. "Limited perception and price discrimination in a model of horizontal product differentiation," Games and Economic Behavior, Elsevier, vol. 134(C), pages 151-168.
    6. Mark Armstrong & John Vickers, 2023. "Multibrand Price Dispersion," Economics Series Working Papers 1029, University of Oxford, Department of Economics.
    7. Christian Oertel & Armin Schmutzler, 2022. "Challenging the incumbent: Entry in markets with captive consumers and taste heterogeneity," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(4), pages 961-979, November.
    8. Johannes Johnen & David Ronayne, 2021. "The only Dance in Town: Unique Equilibrium in a Generalized Model of Price Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 69(3), pages 595-614, September.
    9. Gehrig, Thomas & Ritzberger, Klaus, 2022. "Intermediation and price volatility," Journal of Economic Theory, Elsevier, vol. 201(C).

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    More about this item

    Keywords

    Price competition; Consideration sets; Mixed strategies; Entry and mergers;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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