NDLI: Price competition and innovation in markets with brand loyalty

Content Provider	Springer Nature Link
Author	Schmidt, Robert C.
Copyright Year	2012
Abstract	Intuition suggests that in markets with consumer lock-in (‘brand loyalty’), firms with a large customer base earn higher profits. We show for a homogeneous goods duopoly that the intuition can be misleading, as the intensity of price competition depends on the initial market split. We derive mixed-strategy equilibria, and show that competition is often most intense when the market is split evenly. As a result, firms coordinate on an asymmetric split when consumers are not yet attached to firms. We also allow for asymmetric costs, and analyze when firms with a larger customer base are more eager to innovate.
Starting Page	147
Ending Page	173
Page Count	27
File Format	PDF
ISSN	09318658
Journal	Journal of Economics
Volume Number	109
Issue Number	2
e-ISSN	16177134
Language	English
Publisher	Springer Vienna
Publisher Date	2012-07-12
Publisher Place	Vienna
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Switching cost Market share Customer base Consumer lock-in Mixed-strategy equilibrium Economics general Economic Theory International Economics Microeconomics R & D/Technology Policy
Content Type	Text
Resource Type	Article
Subject	Economics and Econometrics Business, Management and Accounting

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Price competition and innovation in markets with brand loyalty