TAILIEUCHUNG - Pricing Interrelated Goods In Oligopoly

In a symmetric Nash Equilibrium the prices of both goods are randomized in an atomless fashion for the most part of the parameter space apart from the case when the two goods are strongly substitutable in which case the less valuable good is not sold at all. Only when the goods are either independently valued or are substitutes is it feasible that the two prices are randomized independently. When the goods are complements and one of the goods is priced high the other can not be priced in the upper part of its support implying local negative correlation between the two prices. The stronger is the complementarity. | ISET Working Paper Series WP 014-08 OCTOBER 2008 Pricing Interrelated Goods in Oligopoly Sandro Shelegia The International School of Economics at Tbilisi State University ISET is supported by BP the Government of Georgia the Norwegian Ministry of Foreign Affairs Higher Education Support Program of the Open Society Institute the Swedish International Development Agency and the World Bank. International School of Economics at Tbilisi State University 16 Zandukeli Street Tbilisi 0108 Georgia e-mail publications@ Pricing Interrelated Goods In Oligopoly Sandro Shelegia Department of Economics and Business Universitat Pompeu Fabra This Draft July 31 2008 Abstract In this paper we propose a two-good model of price competition in an oligopoly where the two goods can be complements or substitutes and each retailer has a captive consumer base a la Burdett and Judd 1983 . We find that the symmetric Nash Equilibrium of this model features atomless pricing strategies for both goods. When the two goods are complements the prices charged by any retailer are at least locally negatively correlated so if one of the goods is priced high the other one is on a discount. This finding is supported by an empirical observation that simultaneous discounts of complements are infrequent. In contrast if the goods are substitutes or independently valued the prices will be randomized independently unless the less valuable substitute is not sold at all. In the case of complements the retailers earn higher profit relative to the case of selling both goods only as a bundle. The ability to discriminate between the captives and the shoppers through keeping the sum of the two prices high while setting one of the prices low drives the result. Such discrimination is impossible when the goods are substitutes as consumers switch to buying the lower priced substitute. Additionally we provide some insights on bundling in the price dispersion setting. 1 Introduction In this paper we .

• Marketing - Bán hàng
• complicated analysis
• multiple levels
• dominate the domain
• building businesses
• supporting
• existing enterprises
• answer and simply
• elusive
• however
• probably complex
• complicated
• complicated context
• usually requires
• produce results
• drilling or mining
• trình bày báo cáo
• tài liệu báo cáo khoa học
• nghiên cứu y học
• báo cáo y học
• kiến thức y học