We're Number 1: Price Wars for Market Share Leadership

35 Pages Posted: 16 Jan 2014

See all articles by Luis M. B. Cabral

Luis M. B. Cabral

New York University (NYU) - Leonard N. Stern School of Business - Department of Economics; Centre for Economic Policy Research (CEPR)

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Date Written: January 2014

Abstract

I examine the dynamics of oligopolies when fi rms derive subjective value from being the market leader. In equilibrium, prices alternate in tandem between high levels and occasional price wars, which take place when market shares are similar and market leadership is at stake. The stationary distribution of market shares is typically multimodal, that is, much of the time there is a stable market leader. Even though shareholders do not value market leadership per se, a corporate culture that values market leadership may increase shareholder value. From a competition policy point of view, the paper implies that price regime change dynamics and parallel pricing are consistent with competitive behavior -- in fact, hyper-competitive behavior.

Keywords: dynamic oligopoly, price wars, market shares, ordinal rankings, behavioral IO

Suggested Citation

Cabral, Luis M. B., We're Number 1: Price Wars for Market Share Leadership (January 2014). NYU Working Paper No. 2451/33548. Available at SSRN: https://ssrn.com/abstract=2380059

Luis M. B. Cabral (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business - Department of Economics ( email )

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HOME PAGE: http://www.stern.nyu.edu/~lcabral

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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