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    Existence advertising, price competition, and asymmetric market structure

    Eaton, B. C.; MacDonald, Ian A.; Meriluoto, L.
    Abstract
    We examine a two stage duopoly game in which firms advertise their existence to consumers in stage 1 and compete in prices in stage 2. Whenever the advertising technology generates positive overlap in customer bases the equilibrium for the stage 1 game is asymmetric in that one firm chooses to remain small in comparison to its competitor. For a specific random advertising technology we show that one firm will always be half as large as the other. No equilibrium in pure price strategies exists in the stage 2 game and as long as there is some overlap in customer bases the mixed strategy equilibrium is far from the Bertrand equilibrium.... [Show full abstract]
    Keywords
    duopoly; existence advertising; price dispersion; Bertrand paradox; information
    Fields of Research
    1505 Marketing
    Date
    2008-10-15
    Type
    Working Paper
    Collections
    • Department of Financial and Business Systems [526]
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    Citation
    Eaton, C.B., MacDonald, I.A., Meriluoto, L. (2008) Existence advertising, price competition, and asymmetric market structure. University of Canterbury. 32pp.
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