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Product differentiation in successive vertical oligopolies

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  • Paul Belleflamme
  • Eric Toulemonde

Abstract

This is a successive oligopoly model with two varieties of a final product. Downstream firms choose one variety to sell on a final market. Upstream firms specialize in the production of one input specifically designed for one variety, but they also produce the input for the other variety at an extra cost. We show that as more downstream firms choose one particular variety, more upstream firms specialize in the input specific to that variety, and vice-versa. Multiple equilibria may result, and the softening effect of product differentiation on competition might not be strong enough to induce maximal differentiation.

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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): 3 (August)
Pages: 523-545

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Handle: RePEc:cje:issued:v:36:y:2003:i:3:p:523-545

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  1. Matutes, Carmen & Regibeau, Pierre, 1992. "Compatibility and Bundling of Complementary Goods in a Duopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 37-54, March.
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  3. Rotemberg, Julio J. & Saloner, Garth, 2000. "Competition and human capital accumulation: a theory of interregional specialization and trade," Regional Science and Urban Economics, Elsevier, vol. 30(4), pages 373-404, July.
  4. Anderson, Simon P & de Palma, André, 1996. "From Local to Global Competition," CEPR Discussion Papers 1328, C.E.P.R. Discussion Papers.
  5. George Norman & Jacques-François Thisse, 1998. "Technology Choice and Market Structure: Strategic Aspects of Flexible Manufacturing," Discussion Papers Series, Department of Economics, Tufts University 9808, Department of Economics, Tufts University.
  6. Economides, Nicholas, 1989. "Desirability of Compatibility in the Absence of Network Externalities," American Economic Review, American Economic Association, vol. 79(5), pages 1165-81, December.
  7. Michael A. Einhorn, 1992. "Mix and Match Compatibility with Vertical Product Dimensions," RAND Journal of Economics, The RAND Corporation, vol. 23(4), pages 535-547, Winter.
  8. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  9. Matutes, Carmen & Regibeau, Pierre, 1989. "Standardization across Markets and Entry," Journal of Industrial Economics, Wiley Blackwell, vol. 37(4), pages 359-71, June.
  10. Alford, Dave & Sackett, Peter & Nelder, Geoff, 2000. "Mass customisation -- an automotive perspective," International Journal of Production Economics, Elsevier, vol. 65(1), pages 99-110, April.
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Citations

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Cited by:
  1. José Pontes, 2007. "Networks and firm location," The Annals of Regional Science, Springer, vol. 41(4), pages 897-909, December.
  2. Noriaki Matsushima & Tomomichi Mizuno, 2009. "Input specificity and product differentiation," ISER Discussion Paper 0745, Institute of Social and Economic Research, Osaka University.
  3. Jose Pedro Pontes, 2005. "Input Specificity and Location," Working Papers Department of Economics 2005/01, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  4. José Pedro Pontes, 2004. "Agglomeration in a Vertically-linked Oligopoly," Working Papers Department of Economics 2004/06, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  5. André Rocha & José Pedro Pontes, 2005. "Spatial Cournot Oligopoly with Vertical Linkages," Working Papers Department of Economics 2005/11, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  6. E. Bacchiega & O. Bonroy, 2012. "Vertical relations and number of channels in quality-differentiated markets," Working Papers wp823, Dipartimento Scienze Economiche, Universita' di Bologna.
  7. Nisvan Erkal, 2003. "Buyer-Supplier Interaction, Asset Specificity, And Product Choice," Department of Economics - Working Papers Series 885, The University of Melbourne.
  8. Matsushima, Noriaki, 2004. "Technology of upstream firms and equilibrium product differentiation," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1091-1114, November.
  9. Arijit Mukherjee & Piercarlo Zanchettin, 2012. "Vertical integration and product differentiation," Discussion Papers in Economics 12/17, Department of Economics, University of Leicester, revised Sep 2012.

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