Multiproduct price competition with heterogeneous consumers and nonconvex costs |
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Authors: | Luis HB Braido |
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Institution: | aGraduate School of Economics, Getulio Vargas Foundation, Praia de Botafogo 190, s.1100, Rio de Janeiro, RJ 22253-900, Brazil |
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Abstract: | This paper extends the oligopolistic model of price competition to environments with multiple goods, heterogeneous consumers, and arbitrary continuous cost functions. A Nash equilibrium in mixed strategies with an endogenous sharing rule is proven to exist. It is also shown that, in environments with fixed costs and constant marginal costs, all (symmetric and asymmetric) equilibria exhibit price dispersion across stores. Furthermore, the paper identifies scenarios in which prices will necessarily be random. In these markets, stores keep each other guessing because, given the fixed costs, they would incur a loss if their price strategies were anticipated and beaten by competitors. This is interpreted as an important economic feature that is possibly behind random price promotions such as weekly specials. |
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Keywords: | Bertrand competition Discontinuous games Mixed strategy Weekly specials Price dispersion |
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