Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/231768 
Year of Publication: 
2021
Citation: 
[Journal:] International Journal of Industrial Organization [ISSN:] 1873-5703 [Volume:] 75 [Article No.:] 102709 [Publisher:] Elsevier [Place:] Amsterdam [Year:] 2021 [Pages:] --
Publisher: 
Elsevier, Amsterdam
Abstract: 
We study a game in which two firms compete in quality to serve a market consisting of consumers with different initial consideration sets. If both firms invest below a certain threshold, they only compete for those consumers already aware of their existence. Above this threshold, a firm is visible to all and the highest investment attracts all consumers. On the one hand, the existence of initially captive consumers introduces an anti-competitive element: holding fixed the behavior of its rival, a firm with a larger captive segment enjoys a higher payoff from not investing at all. On the other hand, the fact that a firm’s initially captive consumers can still be attracted by very high quality introduces a pro-competitive element: a high investment becomes more profitable for the underdog when the captive segment of the dominant firm increases. The share of initially captive consumers therefore has a non-monotonic effect on the investment levels of both firms and on consumer surplus. We relate our findings to competition cases in digital markets.
Subjects: 
consideration set
regulation
all-pay auction
endogenous prize
digital markets
JEL: 
D4
L1
L4
Published Version’s DOI: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article
Document Version: 
Accepted Manuscript (Postprint)

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