Equilibrium Price Dispersion under Demand Uncertainty: The Roles of Costly Capacity and Market Structure

Dana, James Dwight

doi:10.2307/2556068

Cited by 222 publications

(233 citation statements)

References 26 publications

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“…However, the equilibrium would be different if search costs were finite. In particular, when search costs are zero, equilibrium prices exhibit price dispersion (see Prescott, 1976, Eden, 1990, and Dana, 1994. In such models firms do not compete in availability since consumers can move freely between firms.…”

Section: Consumersmentioning

confidence: 99%

“…2 I use inventory and capacity interchangeably to describe a firm's output decision when it must choose its output before its demand is known. 3 Price rigidities alone introduce the possibility of industry wide stockouts (see Prescott, 1976, Eden, 1990, Deneckere, Marvel, and Peck, 1996, and Dana, 1994, but costly search causes consumers to care about individual firms' stockout rates. 4 See also Bryant (1980) and Gould (1978).…”

Section: Introductionmentioning

confidence: 99%

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Competition in Price and Availability When Availability is Unobservable

Dana¹

2001

The RAND Journal of Economics

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100

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This paper presents a strategic model of competition in both price and availability when firms can publicly commit to prices but not inventories (or capacities). Demand is uncertain and firms may stock out in equilibrium. Consumers choose where to shop given the price and expected availability at each firm (the probability of being served). In a one period model, I show that firms can use higher prices to "signal" higher availability (regardless of whether price or inventory is chosen first). This generates a floor on equilibrium prices and industry profits that exists regardless of the number of firms in the industry. In a repeated game, firms that maintain reputations for higher service rates may earn even higher profits. The model sheds light on the relationship between price, availability, and reputations in the video rental industry. † Associate Professor,

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Section: Consumersmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Competition in Price and Availability When Availability is Unobservable

Dana¹

2001

The RAND Journal of Economics

Self Cite

100

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“…Hence, the model of Dana (1999) supports a negative relationship between market power and price dispersion. On the other hand, McAfee, Mialon, and Mialon (2006) …nd no theoretical connection between the strength of price discrimination and market power.…”

Section: Introductionmentioning

confidence: 57%

“…1 In a theoretical setting, Dana (1999) shows that when capacity is costly and prices are set in advance, …rms facing uncertain demand will sell output at multiple prices.…”

Section: Introductionmentioning

confidence: 99%

Measuring market power when firms price discriminate

Kutlu

Sickles

2017

Empir Econ

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We propose conduct parameter based market power measures within a model of price discrimination, extending work by Hazledine (2006) and Kutlu (2012) to certain forms of second degree price discrimination. We use our model to estimate the market power of U.S. airlines in a price discrimination environment. We …nd that a slightly modi…ed version of our original theoretical measure is positively related with market concentration. Moreover, on average, market power for high-end segment is greater than that of low-end segment.

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“…In many of these theoretical works, change in demand has been seen as a trigger for change in price. Dana (1999) demonstrated that price rigidities and demand uncertainty lead not only to interfirm price dispersion, but also to intra-firm price dispersion. Dana also predicted that price increases with the number of firms.…”

Section: Introductionmentioning

confidence: 99%

The Shanghai–Beijing “Air Express” Service Model and its Impact on the Pricing Behaviour of Airlines

Zhang¹

2011

Asia Pacific Journal of Tourism Research

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Using departure day airfare data, this paper examines the pricing pattern on the ShanghaiBeijing route and reveals anti-competitive pricing behaviour following the introduction of the "Air Express" service. This new service adds limited value to passengers because of the airport facility constraints. Jointly providing the "express" service has provided a channel through which the three dominant players can communicate effectively to achieve more stable prices at a higher level. Interestingly, lower prices charged by the fringe airlines on this route were accommodated by the big ones. Meanwhile, the three dominant airlines did not exhibit any obvious deviation in pricing from each other.

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Equilibrium Price Dispersion under Demand Uncertainty: The Roles of Costly Capacity and Market Structure

Cited by 222 publications

References 26 publications

Competition in Price and Availability When Availability is Unobservable

Competition in Price and Availability When Availability is Unobservable

Measuring market power when firms price discriminate

The Shanghai–Beijing “Air Express” Service Model and its Impact on the Pricing Behaviour of Airlines

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