Dynamic competition with consumer inertia

E.A. Pot; J. Flesch; R.J.A.P. Peeters; A.J. Vermeulen

doi:10.1016/j.jmateco.2013.07.004

Dynamic competition with consumer inertia

E.A. Pot, J. Flesch, R.J.A.P. Peeters^*, A.J. Vermeulen

^*Corresponding author for this work

Research output: Contribution to journal › Article › Academic › peer-review

Abstract

We study a framework where two duopolists compete repeatedly in prices and where chosen prices potentially affect future market shares, but certainly do not affect current sales. This assumption of consumer inertia causes (noncooperative) coordination on high prices only to be possible as an equilibrium for low values of the discount factor. High discount factors increase opportunism and aggressiveness of competition to such an extent that high prices are no longer sustainable as an equilibrium outcome. Moreover, we find that both monopolization and enduring market share and price fluctuations (price wars) can be equilibrium path phenomena without requiring exogenous shocks in market or firm characteristics.

Original language	English
Pages (from-to)	355-366
Number of pages	11
Journal	Journal of Mathematical Economics
Volume	49
Issue number	5
DOIs	https://doi.org/10.1016/j.jmateco.2013.07.004
Publication status	Published - 1 Jan 2013

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Dynamic competition with consumer inertia
Pot, E. A., Flesch, J., Peeters, R. J. A. P. & Vermeulen, A. J., 1 Jan 2011, Maastricht: METEOR, Maastricht University School of Business and Economics, 29 p. (METEOR Research Memorandum; No. 016).
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Dynamic competition with consumer inertia

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Dynamic competition with consumer inertia

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