Economic Theory/Experimental Seminar: Mark Armstrong (Oxford)

Abstract: 

I will talk about two projects, one completed and one work in progress. In each I explore patterns of price competition in an oligopoly where consumers vary in the set of firms/brands they consider for their purchase and buy from the lowest-priced firm/brand they consider. When firms each supply a single brand, I describe a pattern of consideration, termed "symmetric interactions", that generalises models used in existing work (duopoly, symmetric firms, and firms with independent reach). Within this class, equilibrium profits are proportional to a firm's reach, firms with a larger reach set higher average prices, and a reduction in the number of firms (either by exit or by merger) harms consumers. However, increased competition (either by entry or by increased consumer awareness) does not always benefit consumers. I mention patterns of consideration with asymmetric interactions. In situations with disjoint reach and with nested reach we find equilibria in which price competition is "duopolistic": only two firms compete within each price range. In work in progress, I present an extension to this where firms supply multiple brands, in which case there is price dispersion across firms and (potentially) price discrimination within firms. I discuss when firms choose the set the same prices for their brands, and also discuss when firms choose one brand as a “fighting” brand which has a price below that of its “premium” brand.