A Model of Price Leadership Based on Consumer Loyalty

This paper analyses a duopolistic price setting game in which firms have loyal consumer segments, but cannot distinguish them from price sensitive consumers. We adapt a variant of Varian's [1980] simultaneous price setting game to analyse price leader equilibria. The properties of the price lea...

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Bibliographic Details
Published in:The Journal of industrial economics 1992-06, Vol.40 (2), p.147-156
Main Authors: Deneckere, Raymond, Kovenock, Dan, Lee, Robert
Format: Article
Language:English
Subjects:
Brand loyalty
Consumer behavior
Consumer equilibrium
Consumer motivation
Consumer prices
Consumers
Duopoly
Economic models
Equilibrium prices
International trade
Leadership
Loss leaders
Market equilibrium
Market equilibrium prices
Modeling
Nash equilibrium
Price leadership
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Summary:This paper analyses a duopolistic price setting game in which firms have loyal consumer segments, but cannot distinguish them from price sensitive consumers. We adapt a variant of Varian's [1980] simultaneous price setting game to analyse price leader equilibria. The properties of the price leader equilibria with an exogenously specified leader motivate the construction of a game of timing in which the firm with the larger segment of loyal consumers becomes an endogenous price leader. This demonstrates that consumer loyalty may play an important role in establishing the existence and identity of a price leader.
ISSN:0022-1821
1467-6451
DOI:10.2307/2950506