Framing Competition

Joint with: Michele Piccione

We analyze a model of market competition in which two identical firms choose prices as well as how to present, or "frame", their products. A consumer is randomly assigned to one firm, and whether he makes a price comparison with the other firm is a probabilistic function of the firms'

framing strategies. We analyze the Nash equilibria in this model. In particular, we show how the answers to the following questions are linked:

(1) Are firms' choices of prices and frames correlated? (2) Can firms earn payoffs in excess of the max-min level? (3) Does greater consumer rationality (in the sense of better ability to make price comparisons) imply lower equilibrium prices? We also argue that our model provides a novel account of the phenomenon of product differentiation.

For more information, contact Jing Li.