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Product Diversity in Asymmetric Oligopoly: Is the Quality of Consumer Goods Too Low?

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Author Info
Anderson, Simon P
de Palma, Andre

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Abstract

We analyse an oligopoly model incorporating horizontal differentiation and quality differences. High quality goods are overpriced and underproduced. When the market is fairly well covered, low quality products may be profitable when their net social contribution is negative, implying excessive entry. In a relatively uncovered market, even low quality goods are underproduced and there may be underentry. When fixed costs are independent of quality, the market tends to select the right firms. Otherwise, the market may produce low quality products when it should produce high quality ones. The model is calibrated using market data for yogurt. Copyright 2001 by Blackwell Publishing Ltd

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Industrial Economics.

Volume (Year): 49 (2001)
Issue (Month): 2 (June)
Pages: 113-35
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Handle: RePEc:bla:jindec:v:49:y:2001:i:2:p:113-35

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References listed on IDEAS
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  1. Anderson, Simon P & de Palma, Andre & Nesterov, Yurii, 1995. "Oligopolistic Competition and the Optimal Provision of Products," Econometrica, Econometric Society, vol. 63(6), pages 1281-1301, November. [Downloadable!] (restricted)
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  2. Raymond Deneckere & Michael Rothschild, 1986. "Monopolistic Competition and Preference Diversity," Discussion Papers 684, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  3. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Blackwell Publishing, vol. 43(2), pages 217-35, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Urquiola, Miguel & Verhoogen, Eric A., 2007. "Class Size and Sorting in Market Equilibrium: Theory and Evidence," CEPR Discussion Papers 6425, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. ANDERSON, Simon & de PALMA, AndrŽ, 2003. "Price dispersion," CORE Discussion Papers 2003032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
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  3. Bart Bronnenberg, 2008. "Brand competition in CPG industries: Sustaining large local advantages with little product differentiation," Quantitative Marketing and Economics, Springer, vol. 6(1), pages 79-107, March. [Downloadable!] (restricted)
  4. Simon P. Anderson & Régis Renault, 2006. "comparative Advertising," THEMA Working Papers 2006-18, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
  5. Reynald-Alexandre Laurent, 2007. "Probalilistic duopoly with differentiation by attributes," PSE Working Papers 2007-27, PSE (Ecole normale supérieure). [Downloadable!]
  6. Rennhoff, Adam D., 2004. "Paying For Shelf Space: An Investigation Of Merchandising Allowances In The Grocery Industry," Research Reports 25155, University of Connecticut, Food Marketing Policy Center. [Downloadable!]
  7. Andre de Palma & Stef Proost, 2004. "Imperfect competition and congestion in the City," Energy, Transport and Environment Working Papers Series ete0409, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment. [Downloadable!]
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  8. Giorgos Stamatopoulos, 2008. "On the possibility of licensing in a market with logit demand functions," Economics Bulletin, Economics Bulletin, vol. 4(17), pages 1-11. [Downloadable!]
  9. Daniel P. Kessler & Jeffrey J. Geppert, 2005. "The Effects of Competition on Variation in the Quality and Cost of Medical Care," NBER Working Papers 11226, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Rossella Argenziano, 2007. "Differentiated Networks: Equilibrium and Efficiency," Economics Discussion Papers 638, University of Essex, Department of Economics. [Downloadable!]
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  11. Andre de Palma & Stef Proost & Fay Dunkerley, 2004. "Imperfect Competition and Congestion in a City with asymmetric subcenters," Energy, Transport and Environment Working Papers Series ete0411, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment. [Downloadable!]
  12. Marina Giacomo, 2008. "GMM estimation of a structural demand model for yogurt and the effects of the introduction of new brands," Empirical Economics, Springer, vol. 34(3), pages 537-565, June. [Downloadable!] (restricted)
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