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Dynamic competition with consumer inertia

Author

Listed:
  • Pot, E.A.

    (Quantitative Economics)

  • Flesch, J.

    (Quantitative Economics)

  • Peeters, R.J.A.P.

    (Microeconomics & Public Economics)

  • Vermeulen, A.J.

    (Quantitative Economics)

Abstract

We study a framework where two duopolists compete repeatedly in prices and where chosen prices potentially affect future market shares, but certainly do not affect current sales. This assumption of consumer inertia causes (noncooperative) coordination on high prices only to be possible as an equilibrium for low values of the discount factor. High discount factors increase opportunism and aggressiveness of competition to such an extent that high prices are no longer sustainable as an equilibrium outcome. Moreover, we find that both monopolization and enduring market share and price fluctuations (price wars) can be equilibrium path phenomena without requiring exogenous shocks in market or firm characteristics.
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Suggested Citation

  • Pot, E.A. & Flesch, J. & Peeters, R.J.A.P. & Vermeulen, A.J., 2009. "Dynamic competition with consumer inertia," Research Memorandum 037, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    • Handle: RePEc:unm:umamet:2009037
    DOI: 10.26481/umamet.2009037
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    References listed on IDEAS

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    Cited by:

    1. Pot, E.A. & Peeters, R.J.A.P. & Peters, H.J.M. & Vermeulen, A.J., 2010. "Intentional price wars on the equilibrium path," Research Memorandum 028, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    2. Anke Becker & Thomas Deckers & Thomas Dohmen & Armin Falk & Fabian Kosse, 2012. "The Relationship Between Economic Preferences and Psychological Personality Measures," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 453-478, July.
    3. Iwan Bos & Ronald Peeters & Erik Pot, 2017. "Competition versus collusion: The impact of consumer inertia," International Journal of Economic Theory, The International Society for Economic Theory, vol. 13(4), pages 387-400, December.

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