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

Andrew Sweeting; Dun Jia; Shen Hui; Xinlu Yao

doi:10.3386/w28272

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

Andrew Sweeting, Dun Jia, Shen Hui & Xinlu Yao

Working Paper 28272

DOI 10.3386/w28272

Issue Date December 2020

We generalize recent models of dynamic price competition where sellers benefit from learning-by-doing by allowing for long-lived strategic buyers, with a single parameter capturing the extent to which each buyer internalizes future buyer surplus. Many of the equilibria that exist when buyers are atomistic or myopic are eliminated when buyers internalize even a modest share of their effects on future surplus. The equilibria that survive tend to be those where long-run market competition is preserved.

This paper was written while Andrew Sweeting was serving as Director of the Bureau of Economics at the Federal Trade Commission (FTC). The views expressed are those of the authors, and do not reflect the views of the FTC, its staff or any individual Commissioner. We are very grateful to Uli Doraszelski and Steve Kryukov for access to their computational results which helped to confirm our own results with non-strategic buyers. We are also very grateful to David Besanko and Uli Doraszelski for insightful comments, as well as to conference and seminar participants at Penn State, the FTC and the Washington DC IO conference. All errors are our own. We have no material or relevant financial relationships to disclosure. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
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Dynamic Price Competition, Learning-By-Doing and Strategic Buyers

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