Price Competition in the Random Coefficient Attraction Choice Models with Linear Cost

We study the pricing game between competing retailers under various random coefficient attraction choice models. We characterize existence conditions and structure properties of the equilibrium. Moreover, we explore how the randomness and cost parameters affect the equilibrium prices and profits under multinomial logit (MNL), multiplicative competitive interaction (MCI) and linear attraction choice models. Specifically, with bounded randomness, for the MCI and linear attraction models, the randomness always reduces the retailer’s profit. However, for the MNL model, the effect of randomness depends on the product’s value gap. For high-end products (i.e., whose value gap is higher than a threshold), the randomness reduces the equilibrium profit, and vice versa. The results suggest high-end retailers in MNL markets exert more effort in disclosing their exact product performance to consumers. We also reveal the effects of randomness on retailers’ pricing decisions. These results help retailers in making product performance disclosure and pricing decisions.