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Dynamic price dispersion in Bertrand–Edgeworth competition

journal contribution
posted on 01.03.2017, 00:00 authored by Ching-Jen SunChing-Jen Sun
This paper studies a dynamic oligopoly model of price competition under demand uncertainty. Sellers are endowed with one unit of the good and compete by posting prices in every period. Buyers each demand one unit of the good and have a common reservation price. They have full information regarding the prices posted by each firm in the market; hence, search is costless. The number of buyers coming to the market in each period is random. Demand uncertainty is said to be high if there are at least two non-zero demand states that give a seller different option values of waiting to sell. Our model features a unique symmetric Markov perfect equilibrium in which price dispersion prevails if and only if the degree of demand uncertainty is high. Several testable theoretical implications on the distribution of market prices are derived.

History

Journal

International journal of game theory

Volume

46

Issue

1

Pagination

235 - 261

Publisher

Springer

Location

Berlin, Germany

ISSN

0020-7276

Language

eng

Publication classification

C Journal article; C1 Refereed article in a scholarly journal

Copyright notice

2016, Springer-Verlag Berlin Heidelberg