Existence Advertising, Price Competition, and Asymmetric Market Structure

Type of content
Discussion / Working Papers
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Degree name
Publisher
Department of Economics
University of Canterbury. Department of Economics and Finance
Journal Title
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Volume Title
Language
Date
2008
Authors
Eaton, C.B.
MacDonald, I.A.
Meriluoto, L.
Abstract

We examine a two stage duopoly game in which firms advertise their existence to consumers in stage 1 and compete in prices in stage 2. Whenever the advertising technology generates positive overlap in customer bases the equilib- rium for the stage 1 game is asymmetric in that one firm chooses to remain small in comparison to its competitor. For a specific random advertising technology we show that one firm will always be half as large as the other. No equilibrium in pure price strategies exists in the stage 2 game and as long as there is some overlap in customer bases the mixed strategy equilibrium is far from the Bertrand equilibrium.

Description
RePEc Working Papers Series: No. 20/2008 This working paper expands upon ideas presented in: Eaton, B.C., MacDonald, I.A. and Meriluoto, L. (2007) Price Competition when Not All Customers Know of All Firms. Christchurch, New Zealand: 48th Annual Conference New Zealand Association of Economists (NZAE), 27-29 Jun 2007.
Citation
Eaton, C.B., MacDonald, I.A., Meriluoto, L. (2008) Existence Advertising, Price Competition, and Asymmetric Market Structure. University of Canterbury. 32pp..
Keywords
Existence advertising, price dispersion, Bertrand paradox, information
Ngā upoko tukutuku/Māori subject headings
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