Catalog competition: Theory and experimental evidence

Abstract

AbstractThis paper compares the standard location‐then‐pricing Hotelling duopoly with a catalog competition game in which firms simultaneously decide locations and prices. We consider a three‐location space and continuous pricing and fully characterize the unique symmetric equilibrium. In both games, firms employ mixed strategies, producing a mainstream product more often than a specialized one. In the catalog game, prices are always above the marginal cost of production, whereas in the sequential model, prices converge to the marginal cost when firms produce the same variety. We experimentally test our theoretical predictions in the laboratory, finding strong evidence in favor of most of them.