An Asymmetric Duopoly Model of Price Framing

Abstract

This note considers an asymmetric duopoly model of price-frame competition in homogeneous product markets. As in Piccione and Spiegler (2012) and Chioveanu and Zhou (2013), rms choose simultaneously prices and price formats, and frame differentiation limits price comparability leading to consumer confusion. Here, one rm is more salient than its rival and attracts a larger share of confused consumers. In duopoly equilibrium, firm's randomize on both prices and frames, make strictly positive profits, and pricing is frame-independent. However, the prominent rm sets higher average price and charges the monopoly price with positive probability. Higher prominence boosts expected industry's and salient firm's profits, but may harm rivals expected profit.