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Market coverage and the nature of product differentiation: a note

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  • Xavier Y Wauthy

    ()
    (CEREC, facultés Saint-Louis, Bruxelles and CORE, Université catholique Louvain)

Abstract

In this note, we analyze the equilibrium outcomes of pricing games with product differentiation in relation with the extent of market coverage. It is a received idea in the IO literature that the horizontal and vertical models of product differentiation are almost formally equivalent. We show that this idea turns out to be wrong when the full market coverage assumption is relaxed. We then argue that there exist two fundamentally different classes of address-models of differentiation, although their difference is not perfectly captured by the standard horizontal/vertical typology.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 30 (2010)
Issue (Month): 2 ()
Pages: 1129-1136

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Handle: RePEc:ebl:ecbull:eb-10-00002

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Keywords: price competition; product differentiation; vertical differentiation; horizontal differentiation;

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  1. Andreas IRMEN & Jean-François THISSE, 1996. "Competition in Multi-Characteristics Spaces: Hotelling Was Almost Right," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP), Université de Lausanne, Faculté des HEC, DEEP 9613, Université de Lausanne, Faculté des HEC, DEEP.
  2. BOCCARD, Nicolas & WAUTHY, Xavier Y., . "Equilibrium vertical differentiation in a Bertrand model with capacity precommitment," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -2246, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, Econometric Society, vol. 51(5), pages 1469-83, September.
  4. Cremer, Helmuth & Thisse, Jacques-Francois, 1991. "Location Models of Horizontal Differentiation: A Special Case of Vertical Differentiation Models," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 39(4), pages 383-90, June.
  5. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "On the nature of competition with differentiated products," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -685, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Schmidt, Robert C., 2009. "Welfare in differentiated oligopolies with more than two firms," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 27(4), pages 501-507, July.
  7. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "Price competition, quality and income disparities," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -370, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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