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Vertical Differentiation: Multiproduct Strategy to Face Entry?

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Author Info
Jean-Marc Bonnisseau (CES, Université Paris 1 Pantheon-Sorbonne, UMR CNRS 8174)
Rim Lahmandi-Ayed (ESSAI and LEGI-Ecole Polytechnique de Tunisie, La Marsa, Tunisia)

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Abstract

In this paper, we consider an incumbent firm facing potential entry in a vertical differentiation model a la Mussa and Rosen where consumers differ only by their intensity of preference for quality. We ask whether the incumbent firm has the incentive to adopt a multi-product strategy in order to face entry, in a natural duopoly case. It turns out that this strategy is never profitable and that an incumbent always prefers to produce one quality. It appears that either a cost effect or an income dispersion are necessary to urge producers to offer several products.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Topics in Theoretical Economics.

Volume (Year): 6 (2006)
Issue (Month): 1 ()
Pages: 1282-1282
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Handle: RePEc:bep:thetop:v:6:y:2006:i:1:p:1282-1282

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Related research
Keywords: vertical differentiation multiproduct strategy entry

Find related papers by JEL classification:
D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly

References listed on IDEAS
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  1. Lahmandi-Ayed, Rim, 2000. "Natural Oligopolies: A Vertical Differentiation Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(4), pages 971-87, November.
  2. Bonanno, Giacomo, 1987. "Location Choice, Product Proliferation and Entry Deterrence," Review of Economic Studies, Blackwell Publishing, vol. 54(1), pages 37-45, January. [Downloadable!] (restricted)
  3. Takashi Omori & George Yarrow, 1982. "Product Diversification, Entry Prevention and Limit Pricing," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 242-248, Spring. [Downloadable!] (restricted)
  4. W.J. Lane, 1980. "Product Differentiation in a Market with Endogenous Sequential Entry," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 237-260, Spring. [Downloadable!] (restricted)
  5. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August. [Downloadable!] (restricted)
  6. Eric Giraud-Héraud & Hakim Hammoudi & Mahdi Mokrane, 2003. "Multiproduct firm behaviour in a differentiated market," Canadian Journal of Economics, Canadian Economics Association, vol. 36(1), pages 41-61, February. [Downloadable!] (restricted)
  7. Donnenfeld, S. & Weber, S., 1991. "Limit Qualities and Entry Deterrence," Papers 92-4, York (Canada) - Department of Economics.
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  8. Acharyya, Rajat, 1998. "Monopoly and product quality: Separating or pooling menu?," Economics Letters, Elsevier, vol. 61(2), pages 187-194, November. [Downloadable!] (restricted)
  9. Edward C. Prescott & Michael Visscher, 1977. "Sequential Location among Firms with Foresight," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 378-393, Autumn. [Downloadable!] (restricted)
  10. Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-83, September. [Downloadable!] (restricted)
  11. Donnenfeld, Shabtai & Weber, Shlomo, 1992. "Vertical product differentiation with entry," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 449-472, September. [Downloadable!] (restricted)
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