Price competition between an expert and a non-expert

This paper characterizes price competition between an expert and a non-expe rt. In contrast with the expert, the non-expert's repair technology is not always successful. Consumers visit the expert after experiencing an unsucce ssful match at the non-expert. This re-entry affects the behavior of both s ellers. For low enough probability of successful repair at the non-expert, all consumers first visit the non-expert, and a 'timid-pricing' equilibrium results. If the non-expert's repair technology performs well enough, it pa ys for some consumers to disregard the non-expert a visit. They directly go to the expert's shop, and an 'aggressive-pricing' equilibrium pops up. For intermediate values of the non-expert's successful repair a 'mixed-pricing ' equilibrium emerges where the expert randomizes over the monopoly price a nd some lower price. (C) 2000 Elsevier Science BN. All rights reserved.