Asymmetrie price competition with price inertia

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Abstract

In this article, I analyze price competition under price inertia. After setting prices, sellers are unable to change them for a period of predetermined length, hut may delay price commitments indefinitely. Although most consumers consider the firms' products to be perfect substitutes, an arbitrarily small number of "captive" consumers display brand loyalty to a particular firm, even when the competing brand is cheaper. In this article, I show that a firm with even slightly fewer captive customers than its competitor achieves monopoly-power over all remaining consumers.

Original languageEnglish
Pages (from-to)608-618
Number of pages11
JournalRAND Journal of Economics
Volume25
Issue number4
DOIs
StatePublished - 1994
Externally publishedYes

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