Strategy bifurcation and spatial inhomogeneity in a simple model of competing sellers

We present a simple one-parameter model for spatially localised evolving agents competing for spatially localised resources. The model considers selling agents able to evolve their pricing strategy in competition for a fixed market. Despite its simplicity, the model displays extraordinarily rich behavior. In addition to ``cheap'' sellers pricing to cover their costs, ``expensive'' sellers spontaneously appear to exploit short-term favorable situations. These expensive sellers ``speciate'' into discrete price bands. As well as variety in pricing strategy, the ``cheap'' sellers evolve a strongly correlated spatial structure, which in turn creates niches for their expensive competitors. Thus an entire ecosystem of coexisting, discrete, symmetry-breaking strategies arises.Comment: 6 pages, 6 figures, epl2; 1 new figure, include nash equilibrium analysis, typo fixe

Competitive Imperfect Price Discrimination and Market Power

Two duopolists compete on price in the market for a homogeneous product. They can “profile” consumers, that is, identify their valuations with some probability. If both firms can profile consumers but with different abilities, then they achieve positive expected profits at equilibrium. This provides a rationale for firms to (partially and unequally) share data about consumers or for data brokers to sell different customer analytics to competing firms. Consumers prefer that both firms profile exactly the same set of consumers or that only one firm profiles consumers as this entails marginal cost pricing (so does a policy requiring list prices to be public). Otherwise, more protective privacy regulations have ambiguous effects on consumer surplus

Incentives and welfare effect of sharing firm-specific information

This paper studies the incentives and the welfare effect of sharing firm-specific information in asymmetric Cournot and Bertrand oligopoly with mixed substitute and complement goods. Revealing firm-specific cost information is the dominant strategy in Cournot oligopoly, while concealing is so in Bertrand oligopoly. Such information sharing always hurts consumers. It increases social welfare in quantity competition and reduces social welfare in price competition. The results of sharing firm-specific cost information in Cournot oligopoly also apply to sharing firm-specific demand information in Cournot and Bertrand competition. -- In diesem Beitrag werden Anreize und Wohlfahrtseffekte des Austauschs von unternehmensspezifischer Information in einem asymmetrischen Cournot- und Bertrand- Oligopol mit einer Mischung von substitutiven und komplementären Gütern untersucht. Das Aufdecken unternehmensspezifischer Kosteninformation ist die dominante Strategie im Cournot-Oligopol, während im Bertrand-Oligopol diese Information vorenthalten wird. Derartiger Informationsaustausch geht immer zu Lasten der Konsumenten. Er erhöht die soziale Wohlfahrt im Mengenwettbewerb und verringert die soziale Wohlfahrt im Preiswettbewerb. Das Ergebnis des Austauschs unternehmensspezifischer Kosteninformation im Cournot-Oligopol läßt sich auch auf den unternehmensspezifischen Austausch von Nachfrageinformation im Cournot- und Bertrand-Wettbewerb anwenden.

Profits and Competition in a Unionized Duopoly Model with Product Differentiation and Labour Decreasing Returns

In this paper, we aim at investigating if the conventional wisdom, that an increase of competition linked to a decrease in the degree of product differentiation always reduces firms’ profits, remains true in a unionized duopoly model with labour decreasing returns. In this context, mixed results emerge. In particular, we show that a decrease in the degree of product differentiation may affect wages, hence profits, differently, depending on both the mode of competition in the product market (Cournot or Bertrand competition) and the particular unionization structure (firm-specific or industry-wide union(s)). Interestingly, it is shown that the conventional wisdom can actually be reversed, even if under Bertrand competition only.unionized duopoly, labour decreasing returns, product differentiation, profits

Dynamic Duopoly with Inattentive Firms

This paper analyzes an infinite horizon dynamic duopoly with stochastic demand in which firms face costs of absorbing and processing information. Our main result is that the structure of dates at which firms choose to absorb information differ starkly between price and quantity competition. Firms synchronize their actions under price competition whereas they plan sequentially and in an alternating manner under quantity competition. The reason is that under quantity competition the planning firm reduces the uncertainty in the residual demand curve of the inattentive firm which renders planning less attractive for that firm. The opposite holds true under price competition.Inattentiveness, Price Competition, Quantity Competition, Synchronization

The Duopolistic Firm with Endogenous Risk Control: Case of Persuasive Advertising and Product Differentiation

In this paper, a two-period game is constructed, where duopoly firms choose advertising strategies in the first period and compete in price or quantity in the second period by maximizing the value of firm equity. Using certainty equivalence, we demonstrate the impacts of uncertainty and modes of competition on duopoly firms' optimal pricing, production, and advertising strategies. Equilibrium price and quantity outcomes emerge as significantly different from the standard industrial organization model of profit maximization. It turns out that the common measurement of market power, the Lerner index, is generally mis-stated. In contrast to the literature, we also find that firms will optimally switch from quantity to price competition either when advertising costs are low, demand is high, or if idiosyncratic risk is reduced. A series of simulations confirm these findings.

Market Structure, Organizational Structure, and R&D Diversity

We examine the effects of market structure and the internal organization of firms on equilibrium R&D projects. We compare a monopolist's choice of R&D portfolio to that of a welfare maximizer. We next show that Sah and Stiglitz's finding that the market portfolio of R&D is independent of the number of firms under Bertrand competition extends to neither Cournot oligopoly nor a cartel. We also show that the ability of firms to pre-empt R&D by rivals along particular research paths can lead to socially excessive R&D diversification. Lastly, using Sah and Stiglitz's definition of hierarchy, we establish conditions under which larger hierarchies invest in smaller portfolios.