Discussion Paper No. 776 EVOLUTION OF COMPETITIVE EQUILIBRIUM WITH ENDOGENOUS PRODUCT DIFFERENTIATION
نویسندگان
چکیده
Previous theoretical researches show that learning from good performers yields intense competition and results in the low profitability of firms. These researchers do not take into account differentiation strategies being referred as a useful strategic tool to mitigate competition. We introduce an evolutionary (learning) game into a duopoly model with product differentiation on the Hotelling line. We find that central agglomeration appears in the unique stochastically stable state in which the equilibrium price is equal to the marginal cost of firms. This implies that perfectly competitive equilibrium appears even when firms have an opportunity to differentiate themselves through product differentiation and to mitigate competition. JEL classification: C73, D41, D43, R32
منابع مشابه
Evolution of Competitive Equilibrium with Endogenous Product Differentiation
Previous theoretical researches show that learning from good performers yields intense competition and results in the low profitability of firms. These researchers do not take into account differentiation strategies being referred as a useful strategic tool to mitigate competition. We introduce an evolutionary (learning) game into a duopoly model with product differentiation on the Hotelling li...
متن کاملHorizontal Product Differentiation in Bertrand and Cournot Duopoly: the Bertrand Paradox Revisited and Comparative Competitiveness
This paper provides a simple model of endogenous horizontal product differentiation that has two important implications. First, the model can explain the “empirical Bertrand paradox” – the failure to observe homogeneous product Bertrand oligopoly. If product differentiation is possible at reasonable cost, then Bertrand firms would always invest in product differentiation. Using a quadratic util...
متن کاملInvestment Strategies and Market Structure: An Empirical Analysis of Bank Branching Decisions
This paper analyzes the relationship between the competitive environment faced by depository institutions and the decisions these institutions make regarding the size of their branch networks. Specifically, we consider branches as a sunk investment that potentially increases utility for consumers and examine how local competition and product differentiation affect firms’ decisions regarding whe...
متن کاملOn the uniqueness of Bertrand equilibrium
We introduce product differentiation in the model of price competition with strictly convex costs in which firms have to supply all the forthcoming demand. We find that although a continuum of equilibria exists in a homogeneous product market, the competitive price equilibrium is the only robust one. Specifically, as long as the equilibrium correspondence is nonempty, the equilibrium price conv...
متن کاملBuyer Search Costs and Endogenous Product Design
In many cases, buyers must incur search costs to find the price of a product. This search cost affects the behavior of consumers, and through that, it affects the profit maximizing behavior of the firms. As search costs change, so do the competitive marketing mix strategies of the firms. In predicting the effect of changing search costs on the equilibrium prices and allocations, it is important...
متن کامل