Dynamic Price Competition under Word-of-Mouth Communication

This paper introduces a dynamic version of Schmidt (2006), where price competition under word-of-mouth communication is analyzed in a static oligopoly game. A central question is whether the non-monotonicities in the relation between the size of a firm’s customer base and profit that were observed in the static framework persist when the discount factor for future profits is raised. The paper further contains a characterization of the dynamic evolution of market shares. Not surprisingly, the most unrealistic results are obtained when we are only a small step away from the standard Bertrand model with fully informed consumers