The growing use of the Internet has made search costs lower for consumers. We study the effect of this on the incentives for firms to invest in quality. We assume that there are firms producing high‐quality products and others producing low‐quality products; we also assume that the market share of the latter is higher than that of the former. Besides, we analyse the changes of both the revenue effect and the quantity effect; we show that they go in the same nonintuitive direction. In other words, when search costs decrease, the incentives to invest in quality increase.

No abstract

In the gasoline retailing industry, firms are divided into two classes: major integrated international firms and independent local ones. This paper seeks to define the optimal pricing strategy to adopt in a price war situation with the majors in one side and the locals in the other. A sequential infinite horizon game model assuming an initial state of tacit collusion with linear demand and total cost functions is developed. It turns out that the optimal strategy is discontinuous. The duopoly's profit maximisation is achieved with a collusion price higher than the competitive Nash price. Finally, statics comparatives show how the variations in the parameters of the model impact the pricing strategy of each firm, whether it is an international major firm or an independent local firm.

In the retail sector, pricing goods is usually based on practitioner's experiences. Most of the time, the selling price is obtained by multiplying the buying price by an exogenous multiplier. However, There is no particular scientific procedure to determine such a multiplier except from the Lerner index, which is applicable only if the price elasticity of demand is inferior to −1. This paper generalizes the Lerner index to both elastic and inelastic goods by proposing an original model to determine the optimal markup for both static and intertemporal markets no matter what the price elasticity is. Finally, the paper considers the case of the social planner.