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Product Lines and Price Discrimination in the European Car Market

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  • Ginsburgh, Victor
  • Weber, Shlomo

Abstract

In this paper we consider a model of oligopolistic competition where firms make a two-dimensional product line decision. They choose a location in style space, thus inducing horizontal differentiation, and produce different qualities (a product line) of a given good (vertical differentiation), consumed by a population of customers who differ in their income and preference for style. We prove the existence of a non-cooperative equilibrium and show that, as the degree of competition increases, prices approach marginal cost. The approach is used to show that European car producers seem indeed to use product lines to discriminate across EU countries. Copyright 2002 by Blackwell Publishers Ltd and The Victoria University of Manchester

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Bibliographic Info

Article provided by University of Manchester in its journal Manchester School.

Volume (Year): 70 (2002)
Issue (Month): 1 (January)
Pages: 101-14

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Handle: RePEc:bla:manchs:v:70:y:2002:i:1:p:101-14

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  1. Steven Berry & James Levinsohn & Ariel Pakes, 1998. "Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Car Market," NBER Working Papers 6481, National Bureau of Economic Research, Inc.
  2. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, Econometric Society, vol. 63(4), pages 891-951, July.
  3. Victor Ginsburgh & Yves Mertens, 1985. "Product differentiation and discrimination in the European Community: the case of automobiles," ULB Institutional Repository 2013/1755, ULB -- Universite Libre de Bruxelles.
  4. Novshek, William, 1980. "Equilibrium in simple spatial (or differentiated product) models," Journal of Economic Theory, Elsevier, Elsevier, vol. 22(2), pages 313-326, April.
  5. Frank Verboven, 1996. "International Price Discrimination in the European Car Market," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 240-268, Summer.
  6. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  7. Gilbert, Richard J. & Matutes, Carmen, 1989. "Product Line Rivalry with Brand Differentiation," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt1nr3k6nk, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  8. Victor Ginsburgh & Geneviève Vanhamme, 1989. "Price differences in the EC car market: some further results," ULB Institutional Repository 2013/1737, ULB -- Universite Libre de Bruxelles.
  9. Mertens, Yves & Ginsburgh, Victor, 1985. "Product Differentiation and Price Discrimination in the European Community: The Case of Automobiles," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 34(2), pages 151-66, December.
  10. James Brander & Jonathan Eaton, 1982. "Product Line Rivalry," Working Papers, Queen's University, Department of Economics 519, Queen's University, Department of Economics.
  11. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  12. Horstmann, Ignatius & Slivinski, Alan, 1985. "Location models as models of product choice," Journal of Economic Theory, Elsevier, Elsevier, vol. 36(2), pages 367-386, August.
  13. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 63(4), pages 841-90, July.
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Cited by:
  1. Sílvia Jorge & Cesaltina Pires, 2004. "Delivered versus Mill Nonlinear Pricing in Free Entry Markets," Working Papers de Economia (Economics Working Papers), Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro 22, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
  2. Gianpaolo Rossini & Paolo Zanghieri, 2008. "What Drives Price Differentials of Consumables in Europe? Size? Affluence? Or Both?," Open Economies Review, Springer, Springer, vol. 19(1), pages 121-134, February.
  3. Eyal Dvir & Georg H. Strasser, 2013. "Does Marketing Widen Borders? Cross-Country Price Dispersion in the European Car Market," Boston College Working Papers in Economics, Boston College Department of Economics 831, Boston College Department of Economics, revised 04 Apr 2014.

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