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Asymmetric Price Competition with Price Inertia

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  • Arthur Fishman

Abstract

In this article, I analyze price competition under price inertia. After setting prices, sellers are unable to change them for a period of predetermined length, but may delay price commitments indefinitely. Although most consumers consider the firms' products to be perfect substitutes, an arbitrarily small number of "captive" consumers display brand loyalty to a particular firm, even when the competing brand is cheaper. In this article, I show that a firm with even slightly fewer captive consumers than its competitor achieves monopoly power over all remaining consumers.

Suggested Citation

  • Arthur Fishman, 1994. "Asymmetric Price Competition with Price Inertia," RAND Journal of Economics, The RAND Corporation, vol. 25(4), pages 608-618, Winter.
    • Handle: RePEc:rje:randje:v:25:y:1994:i:winter:p:608-618
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    Cited by:

    1. Sneha Bakshi, 2020. "Limits of price competition: cost asymmetry and imperfect information," International Journal of Game Theory, Springer;Game Theory Society, vol. 49(4), pages 913-932, December.
    2. Roy, Santanu, 2000. "Strategic segmentation of a market," International Journal of Industrial Organization, Elsevier, vol. 18(8), pages 1279-1290, December.
    3. Tuvana Pastine & Ivan Pastine, 2001. "Cost of delay, deadlines and endogenous price leadership," Open Access publications 10197/697, School of Economics, University College Dublin.

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