Template-type: ReDif-Paper 1.0
Author-Name: Pot Erik 
Author-Name: Flesch János 
Author-Name: Peeters Ronald 
Author-Name: Vermeulen Dries 
Author-workplace-name: METEOR
Title: Dynamic Competition with Consumer Inertia
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. In particular, high discount factors increase opportunism and aggressiveness of competition to such an extent that high prices are no longer sustainable as an equilibrium outcome (not even in trigger strategies). In addition, 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.
Keywords: microeconomics ; 
Series: Research Memoranda
Creation-Date: 2011
Number: 016
File-URL: http://digitalarchive.maastrichtuniversity.nl/fedora/objects/guid:9d70ae81-c072-4a3b-a07b-af072cd259db/datastreams/ASSET1/content
File-Format: application/pdf
File-Size: 511693
Handle: RePEc:unm:umamet:2011016