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Vertical Product Differentiation and Advertising

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  • Caroline Elliott

Abstract

A duopoly model is developed in which firms' strategic variables include brand quality, the number of distinct market segments to enter and price. Informative advertising is used to overcome consumer ignorance about brands. In contrast to many existing models in which firms engage in price competition, the subgame perfect equilibria of the game are not characterised by the production of vertically differentiated products. Further, whilst the firms typically produce identical high quality products, in some circumstances the production of homogeneous low quality brands can be an equilibrium strategy.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Journal of the Economics of Business.

Volume (Year): 11 (2004)
Issue (Month): 1 ()
Pages: 37-53

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Handle: RePEc:taf:ijecbs:v:11:y:2004:i:1:p:37-53

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Related research

Keywords: Product Differentiation; Advertising; Duopoly; JEL Classifications: C7; D8; L1;

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