Extending the undercut-proof equilibrium to asymmetric settings

The concept of undercut-proof equilibrium was proposed to analyze the differentiated product environment where a pure Nash equilibrium does not exist. However, previous analysis made the simple assumptions that consumers have the same switching costs and the firms have zero production costs. In this paper, a more realistic model is proposed that considers asymmetric switching costs for consumers and nonzero production costs for firms. With this extended model, firms can make more judicious pricing decisions in the highly competitive markets of e-commerce.