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Endogenous Quality Differentiation in Congested Markets

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  • Reitman, David
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    Abstract

    Firms selling a product with congestion externalities to a heterogeneous population of customers have an incentive to offer differentiated levels of quality. In a price competitive market, differentiation arises endogenously through the prices chosen by firms. In equilibrium, firms offer a range of prices, which induce an efficiency improving range of quality levels and allow customers to self-select their preferred price-quality combinations. Additional results suggest that, with many firms in the market, the choice of prices dominates the choice of service capacities in determining congestion levels. Copyright 1991 by Blackwell Publishing Ltd.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

    Volume (Year): 39 (1991)
    Issue (Month): 6 (December)
    Pages: 621-47

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    Handle: RePEc:bla:jindec:v:39:y:1991:i:6:p:621-47

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    Cited by:
    1. van den Berg, Vincent A.C., 2013. "Serial private infrastructures," Transportation Research Part B: Methodological, Elsevier, vol. 56(C), pages 186-202.
    2. Chokri Aloui & Khaïreddine Jebsi, 2010. "Optimal pricing of a two-sided monopoly platform with a one-sided congestion effect," International Review of Economics, Springer, vol. 57(4), pages 423-439, December.
    3. Melo, Emerson, 2014. "Price competition, free entry, and welfare in congested markets," Games and Economic Behavior, Elsevier, vol. 83(C), pages 53-72.
    4. Armony, Mor & Haviv, Moshe, 2003. "Price and delay competition between two service providers," European Journal of Operational Research, Elsevier, vol. 147(1), pages 32-50, May.
    5. Hideo Konishi & Se-il Mun, 2009. "Carpooling and Congestion Pricing: HOV and HOT Lanes," Boston College Working Papers in Economics 719, Boston College Department of Economics.
    6. R. Gibbens & R. Mason & Richard Steinberg, 2000. "Internet service classes under competition," LSE Research Online Documents on Economics 23577, London School of Economics and Political Science, LSE Library.
    7. Pekka Ilmakunnas, 2002. "Strategic behavior in a service industry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(2), pages 69-82.
    8. repec:ebl:ecbull:v:4:y:2005:i:2:p:1-7 is not listed on IDEAS
    9. de Palma, Andre & Lindsey, Robin, 2002. "Private roads, competition, and incentives to adopt time-based congestion tolling," Journal of Urban Economics, Elsevier, vol. 52(2), pages 217-241, September.
    10. Mei Xue & Patrick T. Harker, 2003. "Service Co-Production, Customer Efficiency and Market Competition," Center for Financial Institutions Working Papers 03-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
    11. Jebsi, Khaireddine & Thomas, Lionel, 2006. "Optimal pricing of a congestible good with random participation," Economics Letters, Elsevier, vol. 92(2), pages 192-197, August.
    12. Ni, Guanqun & Xu, Yinfeng & Dong, Yucheng, 2013. "Price and speed decisions in customer-intensive services with two classes of customers," European Journal of Operational Research, Elsevier, vol. 228(2), pages 427-436.
    13. van den Berg, Vincent A.C. & Verhoef, Erik T., 2012. "Is the travel time of private roads too short, too long, or just right?," Transportation Research Part B: Methodological, Elsevier, vol. 46(8), pages 971-983.

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