Price and Quality Competition in a Vertically Differentiated Market with Network Effects
AbstractThe aim of this study is to investigate how network effects affect the quality and price decisions of firms in a vertically differentiated market. As network effects increase, high-quality producers tend to raise quality while low-quality producers lower it. The degree of product differentiation is thus expanded. The price of high-quality products decreases first and then increases, but the price of low-quality product diminishes as network effects increase. Simultaneously, market demand and the market coverage rate expand. Profits and network effects are positively related. In addition, high-quality advantage still holds in the presence of network effects.
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Bibliographic InfoArticle provided by College of Business, Feng Chia University, Taiwan in its journal Journal of Economics and Management.
Volume (Year): 3 (2007)
Issue (Month): 1 (January)
vertical product differentiation; quality competition; network effects;
Find related papers by JEL classification:
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- 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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