Abstract
AbstractBertrand–Edgeworth competition has recently been analyzed under imperfect buyer mobility, as a game in which, once prices are chosen, a static buyer subgame (BS) is played where the buyers choose which seller to visit (see, e.g., Burdett et al. in J Political Econ 109:1060–1085, 2001). Our paper considers a symmetric duopoly where two buyers play a two-stage BS of imperfect information after price setting. An “assessment equilibrium” of the BS is shown to exist in which, with prices at the two firms sufficiently close to each other, the buyers keep loyal if previously served. Conditional loyalty is proved to increase the duopolists’ market power: at the corresponding subgame perfect equilibrium of the entire game, the uniform price is higher than that corresponding to the equilibrium of the BS in which the buyers are persistently randomizing.
Funder
Università degli Studi di Siena
Publisher
Springer Science and Business Media LLC
Reference12 articles.
1. Binmore K (1992) Fun and games. D. C. Heath, Lexington
2. Burdett K, Shi S, Wright R (2001) Pricing and matching with frictions. J Political Econ 109:1060–1085. https://doi.org/10.1086/322835
3. Camera G, Selcuk C (2009) Price dispersion with directed search. J Eur Econ Assoc 7:1193–1224. https://doi.org/10.1162/JEEA.2009.7.6.1193
4. De Francesco MA (1998) The emergence of customer markets in a dynamic buyer game. Quaderni del Dipartimento di Economia Politica, Working Paper 225, Siena
5. De Francesco MA (2005) Matching buyers and sellers. Econ Bull 3(31):1–10