Theory and evidence on pricing by asymmetric oligopolies

We present an analysis of markets with many asymmetrically positioned retailers that compete for the business of both informed and uninformed customers for a homogenous good, such as software, music, book or a brand-name appliance. We show that two forms of asymmetry, one related to loyal segment si...

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Bibliographic Details
Published in:International journal of industrial organization 2006, Vol.24 (1), p.83-105
Main Authors: Kocas, Cenk, Kiyak, Tunga
Format: Article
Language:English
Subjects:
Business economics
Economic models
Electronic commerce
Imperfect competition
Internet
Internet economics
Market theory
Mathematical methods
Oligopoly
Price comparison shopping
Price competition
Pricing
Retail trade
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Summary:We present an analysis of markets with many asymmetrically positioned retailers that compete for the business of both informed and uninformed customers for a homogenous good, such as software, music, book or a brand-name appliance. We show that two forms of asymmetry, one related to loyal segment sizes of retailers and one related to the positioning of firms, completely explain the observed price dispersion in such markets and the multitude of asymmetrical strategies adopted by retailers. The stochastic dominance of empirical mixed strategy measures is used to test the theory with data on 968 books from 10 online retailers.
ISSN:0167-7187
DOI:10.1016/j.ijindorg.2005.02.003