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Journal Article

The only dance in town: Unique equilibrium in a generalized model of price competition

The Journal of Industrial Economics 69 (3): 595–614
2023 Wiley Top Cited Article 2021-2022
Johannes Johnen, David Ronayne (2021)
Price competition, price dispersion, unique equilibrium
JEL Code(s)
D43, L11
We study a canonical model of simultaneous price competition between firms that sell a homogeneous good to consumers who are characterized by the number of prices they are exogenously aware of. Our setting subsumes many employed in the literature over the last several decades. We show there is a unique equilibrium if and only if there exist some consumers who are aware of exactly two prices. The equilibrium we derive is in symmetric mixed strategies. Furthermore, when there are no consumers aware of exactly two prices, we show there is an uncountable-infinity of asymmetric equilibria in addition to the symmetric equilibrium. Our results show the paradigm generically produces a unique equilibrium. We also show that the commonly-sought symmetric equilibrium (which also nests the textbookBertrand pure strategy equilibrium as a special case) is robust to perturbations in consumer behaviour, while the asymmetric equilibria are not.
© 2021 The Editorial Board of The Journal of Industrial Economics and John Wiley & Sons Ltd
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