Citation

Discussion Paper Details

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Title: Patterns of Competitive Interaction

Author(s): Mark Armstrong and John Vickers

Publication Date: June 2019

Keyword(s): Bertrand-Edgeworth competition, Captive customers, Consideration sets, Mixed strategies and price dispersion

Programme Area(s): Industrial Organization

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.

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Bibliographic Reference

Armstrong, M and Vickers, J. 2019. 'Patterns of Competitive Interaction'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13821