Author : Francisco Ruiz-Aliseda
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)
Book Synopsis Experimenting to Learn About Demand in Duopoly with Forward-Looking Consumers by : Francisco Ruiz-Aliseda
Download or read book Experimenting to Learn About Demand in Duopoly with Forward-Looking Consumers written by Francisco Ruiz-Aliseda and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a two-period model, I show that competition between two symmetric duopolists trying to learn about unknown features of demand results in an informationally suboptimal process. Because a firm's marginal return to price experimentation equals zero if the rival's price is matched in the first period, myopic symmetric pricing arises in equilibrium even though a firm's expected second-period profit attains a local minimum. Furthermore, forward-looking consumers suffer from ratcheting because their first-period purchase decisions partly reveal their preferences, which exacerbates the informational suboptimality of the firms' experimentation process without affecting their pricing. The role of firm asymmetries is also analyzed.