Social Learning and Delay in a Dynamic Model of Price Competition

This paper studies dynamic price competition between two firms selling differentiated durable goods to two buyers whose valuations of the two goods depend on their own private type as well as that of the other buyer. We construct an equilibrium based on the key observation that the expected price of either good in period 2 is the same as its price in period 1 on and off the path of play. We show that in equilibrium, a firm that makes a sale in period 1 does not preempt the market in period 2, and less buyer types delay their decisions in period 1 when they become more interdependent.

Click here to view paper.