Competition with an Information Clearinghouse and Asymmetric Firms: Why More than Two May Tango

Présentation de Michael Arnold (University of Delaware, Newark, DE)

 2018-04-04_sem_fse_flyer

Michael Arnold (University of Delaware, Newark, DE)
En collaboration avec Lan Zhang

Abstract: We characterize equilibria of a market in which firms with asymmetric loyal customer bases can pay a fixed cost to advertise their price to compete for shoppers. We find that the magnitude of the advertising cost and differences in the sizes of the firms' loyal market shares are critical in determining which firms compete for shoppers in equilibrium. In particular, if the advertising cost is sufficiently low, then only the two firms with the smallest loyal market shares advertise and compete for shoppers. Alternatively, if the difference in the loyal market shares of the two firms with the smallest loyal markets is sufficiently large, then only those two firms advertise and compete for shoppers. However, more than two firms will compete for shoppers if the advertising cost is sufficiently large and the difference in loyal market shares is sufficiently small. In addition, the advertising probability is decreasing in the size of the firm's loyal customer base, but larger firms price more competitively when they do advertise.

JEL Classification: D4, D83, L19, L89

Keywords: price comparison site; asymmetric loyal markets; costly advertising; price competition