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http://ssrn.com/abstract=1587549
 
 

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Oligopolistic Pricing with Online Search


Lizhen Xu


Georgia Institute of Technology - Scheller College of Business

Jianqing Chen


University of Texas at Dallas - Jindal School of Management

Andrew B. Whinston


University of Texas at Austin - Department of Information, Risk and Operations Management

May 5, 2009

Journal of Management Information Systems, Vol. 27, No. 3, pp. 111-141, 2011
McCombs Research Paper Series IROM-03-10

Abstract:     
We set up a game-theoretic model to examine the oligopolistic price competition, considering two features of online search: the existence of a common search ordering and shoppers who have non-positive search cost. We find that in equilibrium firms set their prices probabilistically rather than deterministically, and different firms follow different price distributions. The equilibrium pricing pattern exhibits an interesting local-competition feature, in which direct price competition occurs only between firms adjacent to each other. Further, we incorporate consumers' search strategies into the model so that both search order and stopping rules are determined rationally by consumers. We show that similar patterns may continue to hold in the fully rational framework when consumers have higher inspection costs for inferior positions.

Number of Pages in PDF File: 41

Keywords: Pricing, Search, Oligopolistic Competition, Price Dispersion, Local Competition

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Date posted: April 11, 2010 ; Last revised: June 23, 2011

Suggested Citation

Xu, Lizhen and Chen, Jianqing and Whinston, Andrew B., Oligopolistic Pricing with Online Search (May 5, 2009). Journal of Management Information Systems, Vol. 27, No. 3, pp. 111-141, 2011; McCombs Research Paper Series IROM-03-10. Available at SSRN: http://ssrn.com/abstract=1587549

Contact Information

Lizhen Xu (Contact Author)
Georgia Institute of Technology - Scheller College of Business ( email )
800 West Peachtree Street NW
Atlanta, GA 30308
United States
HOME PAGE: http://scheller.gatech.edu/xu
Jianqing Chen
University of Texas at Dallas - Jindal School of Management ( email )
2601 North Floyd Road
Richardson, TX 75083
United States
Andrew B. Whinston
University of Texas at Austin - Department of Information, Risk and Operations Management ( email )
CBA 5.202
Austin, TX 78712
United States
512-471-8879 (Phone)
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