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

Abstract

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. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.