Dynamic Competition with Customer Recognition
Volume: Volume 30, No. 4
Issue: Winter 1999
Pages: pp. 604-631
Authors: J. Miguel Villas-Boas
Title: Dynamic Competition with Customer Recognition
Abstract: In many markets firms have some information about their customers resulting from the consumers' past choice behavior. Given this information, firms can better target their market practice with respect to their customers. This article considers such a situation in a duopoly with infinitely lived firms and overlapping generations of customers. A new customer may either have bought the competing product in the previous period or be new to the market. I identify three effects: (i) Firms lower prices to attract the competitoršs previous customers. (ii) Greater consumer patience intensifies competition. (iii) Greater firm patience softens the competitive interaction. With patient firms and consumers, prices are lower than when there is no customer recognition.
JEL Classification
Market Structure, Firm Strategy, and Market Performance: Oligopoly and Other Imperfect Markets;
monopolistic competition; contestable markets (L130)
Marketing (M310)
Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection (D430)
Information and Product Quality; Standardization and Compatibility (L150)
Competition
Duopoly
Firm
Firms