Price wars triggered by entry

Article Abstract:

A model was developed to extend the theory presented by P.D. Klemperer regarding the onset of price wars between an incumbent and dominant player in an industry and a new business enterprise. During the price war, the entrant lowered the prices of goods to compete with the market share of the incumbent. This phenomenon was illustrated in the cigarette manufacturing industry during the 1980s. The model's analysis revealed that customer heterogeneity results to actual switching in price wars caused by the entrant which relied on the distribution of customer set-up costs.

Cigarettes, Cigarette Manufacturing, Pricing Policy, Competition (Economics), Pricing, Prices, Market share, Tobacco industry, Barriers to entry (Industrial organization), Barriers to entry, Price cutting

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Dynamic duopoly with slowly changing customer loyalties

Article Abstract:

A dynamic duopoly which exhibits changes in the loyalties of the customer population is examined through a model similar to a static Bertrand model. In this model, the customers change loyalties in every period from the high- to the low-price setter. Empirical results indicate that price sensitivity frictions result in tradeoffs for firms between competitive efforts to increase market share and monopolistic exploitation of customers.

Usage, Consumer behavior, Stochastic processes

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It pays to be different: endogenous heterogeneity of firms in an oligopoly

Article Abstract:

A model which shows how conditions of technology and demand can support heterogeneous firms in a two-stage duopoly game is presented. These types of firms emerge due to uncertainties in costs and demands. In stage one, the selection of technologies is simultaneous. In stage two, the firms select the appropriate quantities and the equilibrium price is determined. In this model, the number of firms is exogenous.

Analysis, Technology, Demand (Economics)

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