Competition with an information clearinghouse and asymmetric firms: why more than two firms compete (or not) for shoppers (Q2195687)

This paper considers a price oligopoly where firms benefit from both, loyal customers -- who buy from a firm, suffices the price to be at most as high as to customer reservation price -- and shoppers -- who ``purchase at the lowest advertised price if at least one firm advertises'' (p. 57). It does so in order to analyze equilibrium advertizing and pricing strategies with the aid of game theory. The standard proposition of the relevant literature that only two firms advertise with positive probability is thus confirmed; but under certain conditions, the firms that advertise may be more than two, which is the novelty of this paper. The key assumption behind this novel result is that in contrast to the standard modeling, the return from choosing not to compete for shoppers is endogenized by linking it to the advertising strategies of the other firms. Advertising takes place through a profit-maximizing information clearing house at a fee. The results of the paper hold regardless the exogenous or endogenous character of this fee.