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Intertemporal Price Competition

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  • Eaton, Jonathan
  • Engers, Maxim

Abstract

Alternating price competition between firms selling differentiated products to nonhomogeneous consumers can yield two different types of equilibria. One, which we call "disciplined," arises when products are close substitutes. Another, which we call "spontaneous," emerges when products are more differentiated. In disciplined equilibria, an implicit threat to cut price further, in response to an initial price cut, supports quite collusive outcomes, which become less collusive as product differentiation increases. In spontaneous equilibria, no such threat is needed. Consumers in the smaller market tend to pay a higher price, as do consumers served by the more efficient firm. Copyright 1990 by The Econometric Society.

Suggested Citation

  • Eaton, Jonathan & Engers, Maxim, 1990. "Intertemporal Price Competition," Econometrica, Econometric Society, vol. 58(3), pages 637-659, May.
    • Handle: RePEc:ecm:emetrp:v:58:y:1990:i:3:p:637-59
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    Cited by:

    1. Vives, Xavier & Jun, Byoung, 2001. "Incentives in Dynamic Duopoly," CEPR Discussion Papers 2899, C.E.P.R. Discussion Papers.
    2. V. Bhaskar & Fernando Vega-Redondo, 1998. "Asynchronous Choice and Markov Equilibria:Theoretical Foundations and Applications," Game Theory and Information 9809003, University Library of Munich, Germany.
    3. V. Bhaskar & George J. Mailath & Stephen Morris, 2012. "A Foundation for Markov Equilibria with Finite Social Memory," Working Papers 1379, Princeton University, Department of Economics, Econometric Research Program..
    4. Bhaskar, V. & Vega-Redondo, Fernando, 2002. "Asynchronous Choice and Markov Equilibria," Journal of Economic Theory, Elsevier, vol. 103(2), pages 334-350, April.
    5. Richard Arend, 2009. "Defending against rival innovation," Small Business Economics, Springer, vol. 33(2), pages 189-206, August.
    6. Karp, Larry & Perloff, Jeffrey M, 1993. "Why Industrial Policies Fail: Limited Commitment," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt8ss076xw, Department of Agricultural & Resource Economics, UC Berkeley.
    7. Eckert, Andrew, 2004. "An alternating-move price-setting duopoly model with stochastic costs," International Journal of Industrial Organization, Elsevier, vol. 22(7), pages 997-1015, September.
    8. Karp, Larry S & Perloff, Jeffrey M, 1995. "Why Industrial Policies Fail: Limited Commitment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 887-905, November.
    9. Gandomi, Amir & Zolfaghari, Saeed, 2018. "To tier or not to tier: An analysis of multitier loyalty programs׳ optimality conditions," Omega, Elsevier, vol. 74(C), pages 20-36.
    10. Eaton, Jonathan & Engers, Maxim, 1992. "Sanctions," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 899-928, October.
    11. Shy, Oz, 2002. "A quick-and-easy method for estimating switching costs," International Journal of Industrial Organization, Elsevier, vol. 20(1), pages 71-87, January.
    12. Leufkens, K. & Peeters, R.J.A.P., 2006. "Alternating-move hotelling with demand shocks," Research Memorandum 039, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    13. Eckert, Andrew, 2003. "Retail price cycles and the presence of small firms," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 151-170, February.
    14. Jun, Byoung & Vives, Xavier, 2004. "Strategic incentives in dynamic duopoly," Journal of Economic Theory, Elsevier, vol. 116(2), pages 249-281, June.
    15. Leufkens, Kasper & Peeters, Ronald, 2008. "Intertemporal price competition with exogenous demand shocks," Economics Letters, Elsevier, vol. 99(2), pages 301-303, May.

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