Abstract
on competition, we study product assortment competition in a duopoly in which each seller may choose whether to include a decoy in the seller’s product assortment. We provide a complete characterization of the Nash equilibria and their dependence on choice model parameters. We study the evolution of assortment competition and we evaluate the stability of the equilibria in the context of sellers learning about the behavior of their competitors. Our results indicate under what conditions it is benecial for a seller to include a decoy into the seller’s assortment, and under what conditions the seller obtains a free ride from the competitor’s decoy. Our results also show that every pure-strategy Nash equilibrium is stable and every mixed-strategy Nash equilibrium is unstable.
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