Equilibrium price distributions in an asymmetric duopoly

Abstract

We find equilibrium price distributions in a search model with asymmetric duopolists whose marginal costs differ. There are informed consumers who know both prices and buy at the lower one and uninformed consumers who, not knowing prices, choose a store arbitrarily. With asymmetries, pure strategy equilibrium can exist and, even when not, atoms can exist in the firms' price distributions. One surprising result is that increasing the low cost store's marginal cost can lower average prices and raise the expected utilities of both types of consumers. When the low cost firm is foreign, this could justify imposing a tariff.

Citation

Golding, E.L. and Slutsky, S. (2000), "Equilibrium price distributions in an asymmetric duopoly", Advances in Applied Microeconomics (Advances in Applied Microeconomics, Vol. 8), Emerald Group Publishing Limited, Leeds, pp. 139-159. https://doi.org/10.1016/S0278-0984(99)08007-4