Price Competition between an Expert and a Non-Expert

CEPR Discussion Paper Series No. 1905

Posted: 7 Jan 1999

See all articles by Hans Degryse

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

Jan Bouckaert

University of Antwerp - Department of Economics

Date Written: June 1998

Abstract

This paper characterizes price competition between an expert and a non-expert. In contrast with the expert, the non-expert's repair technology is not always successful. Consumers visit the expert after experiencing an unsuccessful match at the non-expert. This re-entry affects the behavior of both sellers. For low enough probability of successful repair at the non-expert, all consumers first visit the non-expert, and a "timid-pricing" equilibrium results. If the non-expert's repair technology performs well enough, it pays for some consumers to disregard the non-expert. They directly go to the expert's shop, and an "aggressive-pricing" equilibrium results. For intermediate values of the non-expert's successful repair a "mixed-pricing" equilibrium emerges where the expert randomizes over the monopoly price and some lower price.

JEL Classification: D43, L13, L15

Suggested Citation

Degryse, Hans and Bouckaert, Jan, Price Competition between an Expert and a Non-Expert (June 1998). CEPR Discussion Paper Series No. 1905. Available at SSRN: https://ssrn.com/abstract=137214

Hans Degryse (Contact Author)

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Jan Bouckaert

University of Antwerp - Department of Economics ( email )

Prinsstraat 13
Antwerp, B-2000
Belgium
+32 3 220 4055 (Phone)

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