| By: |
Renato Gomes (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique);
Jean-Marie Lozachmeur (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique);
Lucas Maestri (FGV-EPGE - Universidad de Brazil) |
| Abstract: |
We study oligopolistic competition by firms practicing second-degree price
discrimination. In line with the literature on demand estimation, our theory
allows for comovements between consumers' taste for quality and propensity to
switch brands. If low-type consumers are sufficiently less (more) brand loyal
than high types, (i) quality provision is inefficiently low at the bottom
(high at the top) of the product line, and (ii) informational rents are
negative (positive) for high types, while positive (negative) for low types.
We produce testable comparative statics on pricing and quality provision, and
show that more competition (in that consumers become less brand-loyal) is
welfare-decreasing whenever it tightens incentive constraints (so much so that
monopoly may be welfare-superior to oligopoly). Interestingly, pure-strategy
equilibria fail to exist whenever brand loyalty is sufficiently different
across consumers types. Accordingly, price/quality dispersion ensues from the
interplay between self-selection constraints and heterogeneity in brand
loyalty. |
| Keywords: |
Price dispersion,Preference correlation,Asymmetric information,Price discrimination,Competition |
| Date: |
2022–04–04 |
| URL: |
https://d.repec.org/n?u=RePEc:hal:wpaper:hal-03629496 |