Article ID: | iaor20135276 |
Volume: | 59 |
Issue: | 8 |
Start Page Number: | 1817 |
End Page Number: | 1835 |
Publication Date: | Aug 2013 |
Journal: | Management Science |
Authors: | Federgruen Awi, Allon Gad, Aksoy-Pierson Margaret |
Keywords: | competitive strategy, pricing, Nash equilibrium, logit |
In this paper, we postulate a general class of price competition models with mixed multinomial logit demand functions under affine cost functions. In these models, the market is partitioned into a finite set of market segments. We characterize the equilibrium behavior of this class of models in the case where each product in the market is sold by a separate, independent firm. We identify a simple and very broadly satisfied condition under which a pure Nash equilibrium exists and the set of Nash equilibria coincides with the solutions of the system of first‐order‐condition equations, a property of essential importance to empirical studies. This condition specifies that in every market segment, each firm captures less than 50% of the