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Vertical Product Differentiation

In: Recent Advances in the Theory of Third-Degree Price Discrimination

Author

Listed:
  • Takanori Adachi

    (Kyoto University)

  • Ryo Hashizume

    (Hannan University)

  • Takeshi Ikeda

    (Daito Bunka University)

  • Tatsuhiko Nariu

    (Doshisha University)

  • Tomohisa Okada

    (Daito Bunka University)

Abstract

In this chapter, we examine the welfare effects of monopolistic and duopolistic third-degree price discrimination (PD) under vertical product differentiation. We find that monopolistic PD under a fixed cost of quality increases social welfare because PD enhances the quality of goods. However, monopolistic PD under variable cost of quality reduces social welfare because quality improvement leads to higher production costs. Moreover, duopolistic PD under a fixed cost of quality enhances social welfare and the total consumer surplus because duopolistic competition constricts rising prices by PD.

Suggested Citation

  • Takanori Adachi & Ryo Hashizume & Takeshi Ikeda & Tatsuhiko Nariu & Tomohisa Okada, 2023. "Vertical Product Differentiation," SpringerBriefs in Economics, in: Recent Advances in the Theory of Third-Degree Price Discrimination, chapter 0, pages 29-42, Springer.
    • Handle: RePEc:spr:spbchp:978-981-99-3205-4_3
    DOI: 10.1007/978-981-99-3205-4_3
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