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Competition in the presence of individual demand uncertainty
Author(s) -
Möller Marc,
Watanabe Makoto
Publication year - 2016
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12127
Subject(s) - monopolistic competition , oligopoly , economics , product differentiation , microeconomics , competition (biology) , benchmark (surveying) , welfare , product market , product (mathematics) , bertrand competition , industrial organization , monopoly , cournot competition , market economy , ecology , geometry , mathematics , geodesy , incentive , biology , geography
This article offers a tractable model of (oligopolistic) competition in differentiated product markets characterized by individual demand uncertainty. The main result shows that, in equilibrium, firms offer advance purchase discounts and that these discounts are larger than in the monopolistic benchmark. Competition reduces welfare by increasing the fraction of consumers who purchase in advance, that is, without (full) knowledge of their preferences.