Dynamic Price Competition, Learning-by-Doing, and Strategic Buyers

Andrew Sweeting, Dun Jia, Shen Hui, Xinlu Yao, American Economic Review 112(4), 1311-1333, April .


We examine how strategic buyer behavior affects equilibrium outcomes in a model of dynamic price competition where sellers benefit from learning-by-doing by allowing each buyer to expect to capture a share of future buyer surplus. Many equilibria that exist when buyers consider only their immediate payoffs are eliminated when buyers expect to capture even a modest share of future surplus, and the equilibria that survive are those where long-run market competition is more likely to be preserved. Our results are relevant for antitrust policy and our approach may be useful for future analyses of dynamic competition.

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