Price patterns in an oligopoly with switching cost and uncertain demand

• Authors: Mateusz ZAWISZA , Bogumił KAMIŃSKI
• Languages of publication: EN

Abstracts

EN

Characteristics of price patterns have been investigated in an oligopoly market with costs for switching a provider. Two regimes of a company’s access to information have been considered. In the benchmark scenario, firms make decisions based on perfect information about demand. In the other – more realistic scenario – they conduct market research to estimate an unknown demand curve and therefore face uncertainty regarding their profit function, which in turn leads to suboptimal decision making. The authors inspected how a company’s access to information on demand, costs for switching a provider and the rate of market renewal influence price patterns on the market. It has been shown that positive switching cost is a sufficient condition for price dispersion, as well as imperfect information about the company's profit function, e.g. from market research. The average price under the perfect information regime is lower than under market research based price setting, a higher switching cost makes it easier for companies to coordinate their prices and a higher rate of market renewal softens the influence of the switching cost on market price.

Keywords

EN

price competition; switching cost; agent-based modeling; uncertain demand; price volatility

• Publisher: Politechnika Wrocławska. Oficyna Wydawnicza Politechniki Wrocławskiej
• Journal: Operations Research and Decisions
• Year: 2013
• Volume: 23
• Issue: 3
• Pages: 71-89

Contributors

author

Mateusz ZAWISZA

• Warsaw School of Economics, Institute of Econometrics, al. Niepodległości 162, 02-554 Warsaw, Poland

author

Bogumił KAMIŃSKI

• Warsaw School of Economics, Institute of Econometrics, al. Niepodległości 162, 02-554 Warsaw, Poland

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Identifiers

DOI

10.5277/ord130306