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Can Rivalry Increase Prices?

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  • Christian Roessler

    (University of Melbourne)

Abstract

Spatially differentiated duopolists set higher-than-monopoly prices at some distances. This phenomenon is shown to occur in any finite- dimensional space for a class of reservation prices that covers concavity and convexity in perceived distance from a design. But an upper bound on the equilibrium duopoly price converges monotonically and quickly to the monopoly price in dimensionality. If consumers care about sufficiently many features of the product (a very small number of criteria is enough), monopoly nearly leads to an extreme price.

Suggested Citation

  • Christian Roessler, 2005. "Can Rivalry Increase Prices?," Microeconomics 0509007, University Library of Munich, Germany, revised 14 Feb 2006.
    • Handle: RePEc:wpa:wuwpmi:0509007
    Note: Type of Document - pdf; pages: 39
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mic/papers/0509/0509007.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    price effect of competition; multidimensional product spaces; duopoly pricing; spatial competition;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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