Consumer Information, Heterogeneous Seller, and Oligopolistic Competition
23 Pages Posted: 3 Mar 2023 Last revised: 11 Apr 2023
Date Written: February 26, 2023
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
Suggested Citation: Suggested Citation