Mixed pricing in oligopoly with consumer switching costs

Article Abstract:

The cost of changing suppliers tends to encourage customers to continue patronizing old ones. Two-period models show that consumer switching costs reduce overall competition because even if firms have an incentive to enlarge their customer bases, they are also encouraged to exploit their locked-in customers. However, switching costs are not monotonically related to strength of competition. Evidence exists for market share underinvestment as an entry-deterrent, price wars and promotions, and action-reaction dynamics in the development of market share.

Consumer behavior

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The learning curve and competition: a stochastic model of duopolistic rivalry

Article Abstract:

Duopolistic price competition in the presence of cost-reducing technological learning is examined through the dynamics of a Markov-perfect equilibrium. The results suggest that such competition is very unstable and highly path-dependent. Given learning economies and chance events, the firm with higher long-run costs may dominate the market, a technologically and socially-inefficient outcome. However, market-sharing is also an alternative, long-run result. In equilibrium, firms gain cost advantages by incurring temporary losses.

Usage, Markov processes, Learning curves, Experience curves, Price cutting

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Relative performance evaluation of management: the effects on industrial competition and risk sharing

Article Abstract:

Management evaluation based on the firm's profits versus that of the industry average may result in the conflict of risk sharing objectives and those of strategic competition. In an oligopoly, the use of such relative performance evaluation systems will succeed only if firms compete on quantities, not on prices. Analysis shows that the Stackelberg leader follower model is an equilibrium solution, given that managers are risk neutral. In this case, relative performance evaluation is optimal.

Models, Evaluation, Risk (Economics), Management, Pricing

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