Consumer Information, Heterogeneous Seller, and Oligopolistic Competition

Abstract

Consumers heterogeneously possess limited price information: captive consumers may know only one price from a seller, while informed consumers know several prices. We study a homogeneous-good oligopoly where sellers of heterogeneous costs compete on price for heterogeneously limit-informed consumers. We characterize a unique symmetric monotone Bayesian equilibrium. Our main results show that 1) the number of sellers alone does not affect prices when the heterogeneously limit-informed consumers remain unchanged; 2) prices fall when captive consumers become sufficiently more informed; 3) prices of sellers with higher (lower) costs rise (fall) when informed consumers become sufficiently more informed, which results in higher expected price in some cases. The effects on seller profits and consumer surplus are also examined and illustrated through a triopoly example.

Keywords: Consumer Information; Price Dispersion; Oligopoly

JEL Classification: D11, D43, D83, L13