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

37 Pages Posted: 2 Jun 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: February 2014

Abstract

I examine the dynamics of oligopolies when firms 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 multi-modal, 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: behavioral IO, dynamic oligopoly, market shares, ordinal rankings, price wars

JEL Classification: L13, L21

Suggested Citation

Cabral, Luis M. B., We're Number 1: Price Wars for Market Share Leadership (February 2014). CEPR Discussion Paper No. DP9818. Available at SSRN: https://ssrn.com/abstract=2444818

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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