DP1905 | Price Competition Between an Expert and a Non-Expert

Publication Date

30/06/1998

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Abstract

This paper characterizes price competition between an expert and a non-expert. In contrast with the expert, the non-expert?s repair technology is not always successful. Consumers visit the expert after experiencing an unsuccessful match at the non-expert. This re-entry affects the behaviour of both sellers. For low enough probability of successful repair at the non-expert, all consumers first visit the non-expert, and a ?timid-pricing? equilibrium results. If the non-expert?s repair technology performs well enough, it pays for some consumers to disregard the non-expert. They directly go to the expert?s shop, and an ?aggressive-pricing? equilibrium results. For intermediate values of the non-expert?s successful repair a ?mixed-pricing? equilibrium emerges where the expert randomizes over the monopoly price and some lower price.