Working Paper: CEPR ID: DP13821
Authors: Mark Armstrong; John Vickers
Abstract: We explore patterns of competitive interaction by studying mixed-strategy equilibrium pricing in oligopoly settings where consumers vary in the set of suppliers they consider for their purchase. In the case of "nested reach" we find equilibria, unlike those in existing models, in which price competition is segmented: small firms offer only low prices and large firms only offer high prices. We characterize equilibria in the three-firm case using correlation measures of competition between pairs of firms. We then contrast them with equilibria in the parallel model with capacity constraints. A theme of the analysis is how patterns of consumer consideration matter for competitive outcomes.
Keywords: consideration sets; mixed strategies; price dispersion; captive customers; Bertrand-Edgeworth competition
JEL Codes: D43; D83; L11; L13; L15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| consumer behavior (D19) | pricing strategies (D49) |
| firm size (L25) | pricing strategies (D49) |
| nature of consumer consideration sets (D10) | pricing strategies (D49) |
| competitive interactions among firms (L13) | pricing patterns (D49) |
| structure of consumer consideration (D10) | pricing strategies (D49) |