Template-type: ReDif-Paper 1.0
Author-Name: Bos Iwan 
Author-Name: Peeters Ronald 
Author-Name: Pot Erik 
Author-workplace-name: METEOR
Title: Competition versus Collusion: The Impact of Consumer Inertia
Abstract: We consider a model of dynamic price competition to analyze the impact of consumer inertia on the ability of firms to sustain high prices. Three main consequences are identified, all of which contrast with predictions of the standard model of collusion: (i) maintaining high prices does not require punishment strategies when firms are sufficiently myopic, (ii) if buyers are sufficiently inert, then high prices can be sustained for all discount factors, and (iii) the ability to maintain high prices may depend non-monotonically on the level of the discount factor when the industry exhibits network externalities and demand is sufficiently viscous. These results provide a number of interesting insights with regard to competitive and collusive pricing behavior. In particular, we illustrate how direct communication between firms may facilitate collusion.
Keywords: microeconomics ; 
Series: Research Memoranda
Creation-Date: 2010
Number: 024
File-URL: http://arnop.unimaas.nl/show.cgi?fid=18946
File-Format: application/pdf
File-Size: 357961
Handle: RePEc:unm:umamet:2010024