Patterns of Competitive Interaction

48 Pages Posted: 30 Jul 2019

See all articles by Mark Armstrong

Mark Armstrong

University of Oxford

john vickers

University of Oxford

Date Written: June 2019

Abstract

We explore patterns of competitive interaction by studying mixed-strategy equilibrium pricing in oligopoly settings where consumers vary in the set of suppliers they consider for their purchase. In the case of "nested reach" we find equilibria, unlike those in existing models, in which price competition is segmented: small firms offer only low prices and large firms only offer high prices. We characterize equilibria in the three-firm case using correlation measures of competition between pairs of firms. We then contrast them with equilibria in the parallel model with capacity constraints. A theme of the analysis is how patterns of consumer consideration matter for competitive outcomes.

Keywords: Bertrand-Edgeworth competition, Captive customers, Consideration sets, Mixed strategies, price dispersion

JEL Classification: D43, D83, L11, L13, L15

Suggested Citation

Armstrong, Mark and vickers, john, Patterns of Competitive Interaction (June 2019). CEPR Discussion Paper No. DP13821, Available at SSRN: https://ssrn.com/abstract=3428341

Mark Armstrong (Contact Author)

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

John Vickers

University of Oxford ( email )

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