IDEAS home Printed from https://ideas.repec.org/p/hal/psewpa/halshs-00590488.html
   My bibliography  Save this paper

Differentiated duopoly with 'elimination by aspects'

Author

Listed:
  • Laurent Reynald-Alexandre

    (PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

Abstract

"Elimination by aspects" (EBA) is a discrete model of probabilistic choice worked out by Tversky in 1972 which supposes that decision makers follow a particular heuristic during a process of sequential choice. Options are described by their attributes and, at each decision stage, the individuals eliminate all the options not having an expected given attribute, and so until only one option remains. In this paper, probabilities resulting from the EBA model are used to construct demands of a differentiated duopoly with imperfect rationality. These demands are consistent with partial heterogeneity of tastes and may be linked with a spatial framework in which consumers have convex perception of distance. In this model, a Nash price equilibrium in pure strategies exists if the cost of the highest attributes level firm is not too low. In this case, the "differentiation by attributes" form retained here is both horizontal and vertical, which is not very frequent in the literature. When the equilibrium does not exists, the interaction of best response functions of the firms induces an Edgeworth cycle instead of an exit of the lowest attributes level firm. This result underlines the role of cost difference in the existence of such a cycle.

Suggested Citation

  • Laurent Reynald-Alexandre, 2006. "Differentiated duopoly with 'elimination by aspects'," PSE Working Papers halshs-00590488, HAL.
  • Handle: RePEc:hal:psewpa:halshs-00590488
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00590488
    as

    Download full text from publisher

    File URL: https://shs.hal.science/halshs-00590488/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Chen, Hsiao-Chi & Friedman, James W. & Thisse, Jacques-Francois, 1997. "Boundedly Rational Nash Equilibrium: A Probabilistic Choice Approach," Games and Economic Behavior, Elsevier, vol. 18(1), pages 32-54, January.
    2. repec:cdl:agrebk:663536 is not listed on IDEAS
    3. Jeffrey M. Perloff & Steven C. Salop, 1985. "Equilibrium with Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(1), pages 107-120.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andrew Rhodes & Jidong Zhou, 2019. "Consumer Search and Retail Market Structure," Management Science, INFORMS, vol. 67(6), pages 2607-2623, June.
    2. Yongmin Chen & Scott J Savage, 2011. "The Effects of Competition on the Price for Cable Modem Internet Access," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 201-217, February.
    3. Rong-Chang Jou & David A. Hensher & Yu-Hsin Liu & Ching-Shu Chiu, 2010. "Urban Commuters’ Mode-switching Behaviour in Taipai, with an Application of the Bounded Rationality Principle," Urban Studies, Urban Studies Journal Limited, vol. 47(3), pages 650-665, March.
    4. Philip A. Haile & Ali Hortaçsu & Grigory Kosenok, 2008. "On the Empirical Content of Quantal Response Equilibrium," American Economic Review, American Economic Association, vol. 98(1), pages 180-200, March.
    5. Antonio Cabrales & Giovanni Ponti, 2000. "Implementation, Elimination of Weakly Dominated Strategies and Evolutionary Dynamics," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(2), pages 247-282, April.
    6. Au, Pak Hung & Kawai, Keiichi, 2020. "Competitive information disclosure by multiple senders," Games and Economic Behavior, Elsevier, vol. 119(C), pages 56-78.
    7. Wilson, Chris M, 2009. "Market Frictions: A Unified Model of Search and Switching Costs," MPRA Paper 13672, University Library of Munich, Germany.
    8. Landi, Massimiliano & Menicucci, Domenico, 2024. "Allocating vehicle registration permits," Journal of Economic Behavior & Organization, Elsevier, vol. 221(C), pages 327-349.
    9. Yi, Kang-Oh, 2005. "Quantal-response equilibrium models of the ultimatum bargaining game," Games and Economic Behavior, Elsevier, vol. 51(2), pages 324-348, May.
    10. Rhodes, Andrew & Zhou, Jidong, 2022. "Personalized Pricing and Competition," MPRA Paper 112988, University Library of Munich, Germany.
    11. Anderson, Simon P. & de Palma, Andre, 1999. "Reverse discrete choice models," Regional Science and Urban Economics, Elsevier, vol. 29(6), pages 745-764, November.
    12. Philippe Jehiel, 2022. "Analogy-Based Expectation Equilibrium and Related Concepts:Theory, Applications, and Beyond," PSE Working Papers halshs-03735680, HAL.
    13. Jacint Balaguer Coll & José C. Pernías, 2010. "Spatial density, average prices and price dispersion. Evidence from the Spanish hotel industry," Working Papers. Serie EC 2010-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    14. Mirko Kremer & Laurens Debo, 2016. "Inferring Quality from Wait Time," Management Science, INFORMS, vol. 62(10), pages 3023-3038, October.
    15. Chakraborty, Ratula & Dobson, Paul W. & Seaton, Jonathan S. & Waterson, Michael, 2015. "Pricing in inflationary times: The penny drops," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 71-86.
    16. Horii, R., 2000. "Emergence of New Industries and Endogenous Growth Cycles," ISER Discussion Paper 0510, Institute of Social and Economic Research, Osaka University.
    17. Simon P. Anderson & Jacob K. Goeree & Charles A. Holt, 2002. "The Logit Equilibrium: A Perspective on Intuitive Behavioral Anomalies," Southern Economic Journal, John Wiley & Sons, vol. 69(1), pages 21-47, July.
    18. José L Moraga-González & Zsolt Sándor & Matthijs R Wildenbeest, 2021. "Simultaneous Search for Differentiated Products: The Impact of Search Costs and Firm Prominence," The Economic Journal, Royal Economic Society, vol. 131(635), pages 1308-1330.
    19. Dagsvik, John K., 2020. "Equilibria in Logit Models of Social Interaction and Quantal Response Equilibrium," HERO Online Working Paper Series 2020:5, University of Oslo, Health Economics Research Programme, revised 09 Mar 2023.
    20. Alexia Gaudeul & Robert Sugden, 2012. "Spurious Complexity and Common Standards in Markets for Consumer Goods," Economica, London School of Economics and Political Science, vol. 79(314), pages 209-225, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:psewpa:halshs-00590488. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.