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Multiproduct firm behaviour in a differentiated market

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  • Eric Giraud-Héraud
  • Hakim Hammoudi
  • Mahdi Mokrane

Abstract

In this paper we offer a generalization of the circular model of product differentiation by introducing a multiproduct firm facing monoproduct competitors. We prove existence and explicitly characterize equilibrium when transportation costs are quadratic. We exhibit interesting equilibrium features for price policy, market shares, and profits. In equilibrium, the multiproduct firm uses its connected market shares to build asymmetric pricing schemes that allow a fraction of its product line (brands, stores or firms) to be shielded from outside competition and hence extracts maximum consumer surplus. Our results shed some light on the link between product differentiation and mergers and acquisitions activity (M&As).

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 36 (2003)
Issue (Month): 1 (February)
Pages: 41-61

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Handle: RePEc:cje:issued:v:36:y:2003:i:1:p:41-61

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Cited by:
  1. Dieter Pennerstorfer, 2014. "Price and Quality Competition in Spatial Markets. The Case of Camping Sites," WIFO Working Papers 466, WIFO.
  2. Wenzel, Tobias, 2010. "Deregulation of shopping hours: The impact on independent retailers and chain stores," DICE Discussion Papers 03, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  3. Alexei Alexandrov, 2008. "Interconnecting Differentiated Networks," Working Papers 08-07, NET Institute, revised Oct 2008.
  4. António Brandão & João Correia-da-Silva & Joana Pinho, 2010. "Spatial competition between shopping centers," FEP Working Papers 394, Universidade do Porto, Faculdade de Economia do Porto.
  5. Pennerstorfer, Dieter & Weiss, Christoph, 2013. "Spatial clustering and market power: Evidence from the retail gasoline market," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 661-675.
  6. Jacques Laye & Hervé Tanguy, 2004. "Are neighbors welcome ? e-buyer search, price competition and coalition strategy in the Internet retailing," Working Papers hal-00242928, HAL.

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