Work

Random Pricing: Bertrand Competition with Uncontested Consumers

Year: 2025

Type: article

Abstract: Two firms offer a homogeneous product and compete in prices. Consumers are homogeneous yet differ in their access to the firms. Three groups exist: Consumers who have access to both firms and can compare prices; and consumers who can access only one of the two firms and are thus uncontested. The group sizes may differ: One firm’s uncontested consumer base may be zero. No pure strategy equilibrium exists. In the mixed equilibrium, firms randomize on the same continuum of prices; in expectation, the firm with the larger consumer base plays a higher price and has a higher expected demand. We study: the firms’ incentive to invest in demand; effects of price discrimination; and collusion. Moreover, we extend the model to more than two firms and discuss mergers.

Source: Review of Industrial Organization

DOI: 10.1007/s11151-025-10013-5

Author: Severin Lenhard

Institutions: University of St.Gallen, Competition Commission Secretariat

Language: English

Topic: Merger and Competition Analysis

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,190

Funder: Universität St. Gallen