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The Diffusion of Consumer Durables in a Vertically Differentiated Oligopoly

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  • Raymond J. Deneckere
  • Andre' de Palma

Abstract

In a vertically differentiated durable goods duopoly, prices tend to decline over time because the high-quality manufacturer's future product may compete more directly with the other firm's present product than with its own. This removes the standard reason not to cut prices (Stokey, 1979). Price levels depend not only on the similarity of the two products, but also on how readily the low-quality manufacturer's customers abstain from purchasing in order to obtain the high-quality good at a reduced price in the future. When quality choice is endogenized, substantially less vertical differentiation arises than would occur for nondurables.

Suggested Citation

  • Raymond J. Deneckere & Andre' de Palma, 1998. "The Diffusion of Consumer Durables in a Vertically Differentiated Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 750-771, Winter.
    • Handle: RePEc:rje:randje:v:29:y:1998:i:winter:p:750-771
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    Cited by:

    1. Paulson Gjerde, Kathy A. & Slotnick, Susan A., 2004. "Quality and reputation: The effects of external and internal factors over time," International Journal of Production Economics, Elsevier, vol. 89(1), pages 1-20, May.
    2. Talat S. Genc & Georges Zaccour, 2010. "Investment Dynamics: Good News Principle," Working Papers 1006, University of Guelph, Department of Economics and Finance.
    3. de Palma, Andre & Kilani, Moez, 2008. "Regulation in the automobile industry," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 150-167, January.
    4. Hoppe, Heidrun C. & Lee, In Ho, 2003. "Entry deterrence and innovation in durable-goods monopoly," European Economic Review, Elsevier, vol. 47(6), pages 1011-1036, December.
    5. Genc, Talat S. & Reynolds, Stanley S. & Sen, Suvrajeet, 2007. "Dynamic oligopolistic games under uncertainty: A stochastic programming approach," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 55-80, January.

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