DP1905 Price Competition Between an Expert and a Non-Expert
|Author(s):||Jan Bouckaert, Hans Degryse|
|Publication Date:||June 1998|
|Keyword(s):||differentiation, Price Competition, Quality, re-entry|
|JEL(s):||D43, L13, L15|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=1905|
This paper characterizes price competition between an expert and a non-expert. In contrast with the expert, the non-expert?s repair technology is not always successful. Consumers visit the expert after experiencing an unsuccessful match at the non-expert. This re-entry affects the behaviour of both sellers. For low enough probability of successful repair at the non-expert, all consumers first visit the non-expert, and a ?timid-pricing? equilibrium results. If the non-expert?s repair technology performs well enough, it pays for some consumers to disregard the non-expert. They directly go to the expert?s shop, and an ?aggressive-pricing? equilibrium results. For intermediate values of the non-expert?s successful repair a ?mixed-pricing? equilibrium emerges where the expert randomizes over the monopoly price and some lower price.