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Existence Advertising, Price Competition and Asymmetric Market Structure

Author

Listed:
  • Eaton B. Curtis

    (University of Calgary, eaton@ucalgary.ca)

  • MacDonald Ian A.

    (Lincoln University, ian.macdonald@lincoln.ac.nz)

  • Meriluoto Laura

    (University of Canterbury, laura.meriluoto@canterbury.ac.nz)

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 equilibrium 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 pure-strategy price equilibrium exists in the stage-2 game, and as long as there is some overlap in customer bases, the mixed-strategy price equilibrium does not converge to the Bertrand equilibrium.

Suggested Citation

  • Eaton B. Curtis & MacDonald Ian A. & Meriluoto Laura, 2010. "Existence Advertising, Price Competition and Asymmetric Market Structure," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-29, August.
    • Handle: RePEc:bpj:bejtec:v:10:y:2010:i:1:n:39
    DOI: 10.2202/1935-1704.1687
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    References listed on IDEAS

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    Cited by:

    1. De Nijs, Romain, 2013. "Information provision and behaviour-based price discrimination," Information Economics and Policy, Elsevier, vol. 25(1), pages 32-40.
    2. David P. Myatt, 2019. "A Theory of Stable Price Dispersion," Economics Series Working Papers 873, University of Oxford, Department of Economics.
    3. Pedro Gomis-Porqueras & Benoit Julien & Chengsi Wang, 2012. "Informative Advertising in Directed Search," Discussion Papers 2012-26, School of Economics, The University of New South Wales.
    4. Michael Arnold & Eric Schmidbauer & Lan Zhang, 2022. "Uniform and targeted informative advertising with asymmetric customer loyalty," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(1), pages 90-114, February.

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    More about this item

    Keywords

    existence advertising; price dispersion; Bertrand equilibrium; duopoly;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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