Gomes, Renato, Lozachmeur, Jean-Marie and Maestri, Lucas (2022) Nonlinear Pricing in Oligopoly: How Brand Preferences Shape Market Outcomes. TSE Working Paper, n. 22-1326, Toulouse

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We study oligopolistic competition by firms practicing second-degree price discrimination. In line with the literature on demand estimation, our theory allows for comovements between consumers’ taste for quality and propensity to switch brands. If low-type consumers are sufficiently less (more) brand loyal than high types, (i) quality provision is inefficiently low at the bottom (high at the top) of the product line, and (ii) informational rents are negative (positive) for high types, while positive (negative) for low types. We produce testable comparative statics on pricing and quality provision, and show that more competition (in that consumers become less brand-loyal) is welfare-decreasing whenever it tightens incentive constraints (so much so that monopoly may be welfare-superior to oligopoly). Interestingly, pure-strategy equilibria fail to exist whenever brand loyalty is sufficiently different across consumers types. Accordingly, price/quality dispersion ensues from the interplay between self-selection constraints and heterogeneity in brand loyalty.

Item Type: Monograph (Working Paper)
Language: English
Date: March 2022
Place of Publication: Toulouse
Uncontrolled Keywords: competition, price discrimination, asymmetric information, preference correlation, price dispersion
JEL Classification: D82 - Asymmetric and Private Information
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 30 Mar 2022 09:59
Last Modified: 16 Jan 2023 15:37
OAI Identifier: oai:tse-fr.eu:126836
URI: https://publications.ut-capitole.fr/id/eprint/45097
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