Multiproduct Duopoly with Vertical Differentiation
AbstractThis paper investigates a two-stage competition in a vertically differentiated industry, where each firm produces an arbitrary number of similar qualities and sells them to heterogeneous consumers. The number of products, qualities, prices, and the extent of the market coverage are endogenously determined. We show that when unit costs of quality improvement are increasing and quadratic, each firm has an incentive to provide a disconnected set of similar qualities approximating a continuum. The finding contrasts sharply with the single-quality outcome when the market coverage is exogenously determined. We also show that allowing for multiple qualities intensifies the level of competition, lowers the profit of each firm, and raises the consumer surplus and the social welfare in comparison to the single-quality duopoly.
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Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.
Volume (Year): 11 (2011)
Issue (Month): 1 (August)
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Web page: http://www.degruyter.com
Other versions of this item:
- Yi-Ling Cheng & Shin-Kun Peng & Takatoshi Tabuchi, 2010. "Multiproduct Duopoly with Vertical Differentiation," CIRJE F-Series CIRJE-F-739, CIRJE, Faculty of Economics, University of Tokyo.
- Yi-Ling Cheng & Shin-Kun Peng & Takatoshi Tabuchi, 2010. "Multiproduct Duopoly with Vertical Di¤erentiation," IEAS Working Paper : academic research 10-A004, Institute of Economics, Academia Sinica, Taipei, Taiwan.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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- Evdokia Dritsa & Eleftherios Zacharias, 2012. "Price Competition in a Duopoly Characterized by Positional Effects," Working Papers 12-21, NET Institute.
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