DP13821 Patterns of Competitive Interaction

Author(s): Mark Armstrong, John Vickers
Publication Date: June 2019
Keyword(s): Bertrand-Edgeworth competition, Captive customers, Consideration sets, Mixed strategies, price dispersion
JEL(s): D43, D83, L11, L13, L15
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13821

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.