Iwan Bos , Ronald Peeters , Erik Pot Competition versus Collusion : The Impact of Consumer Inertia

We consider a model of dynamic price competition to analyze the impact of consumer inertia on the ability of firms to sustain high prices. Three main consequences are identified: (i) maintaining high prices does not require punishment strategies when firms are sufficiently myopic, (ii) if buyers are sufficiently inert, then high prices can be sustained for all discount factors, and (iii) the ability to maintain high prices may depend nonmonotonically on the level of the discount factor. These results provide a number of valuable insights with regard to competitive and collusive pricing behavior. For example, our findings suggest that measures aiming at lowering the degree of consumer inertia may in fact facilitate collusion in network industries.