Imitation and price competition in a differentiated market

We study the market outcome that evolves in the long-run when price-setting firms, that compete in a differentiated market, are driven by an imitation dynamic. We find that the prices that can evolve in the long-run depend on the level of market differentiation and on the degree of oversight firms have on market decisions and outcomes. The unique symmetric pure Nash equilibrium price is always supported in the long-run, and it is the unique long-run market outcome for high and low levels of differentiation, when there is no oversight or even with limited oversight on market decisions and outcomes. For intermediate levels of differentiation, in addition to the Nash equilibrium price, there is a set of prices that may emerge in the long-run: while these other prices are below Nash equilibrium price when there is (almost) no oversight on market performances, they are above Nash equilibrium price when the oversight on market performances is more acute. JEL Classification: C72, C73, D21, D43, L11, L13.