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Monopoly and Product Diversity: The Role of Retailer Countervailing Power

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Abstract

We analyse a monopolist’s choice of product diversity and the effects of retailer countervailing power on that choice. We show that monopoly causes distortion in product diversity even after we take into consideration the effects of monopoly pricing. Specifically, the number of differentiated goods produced by the monopolist is smaller than that of the constrained social optimum. Retailer countervailing power lowers consumer prices but reduces product diversity. Consequently, it alleviates the distortion in prices but exacerbates the distortion in product diversity. In our model the former is outweighed by the latter and countervailing power makes consumers worse off. Therefore, price changes do not tell the whole story about how consumers are affected by countervailing power.

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Bibliographic Info

Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 04-19.

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Length: 25 pages
Date of creation: 08 Nov 2004
Date of revision:
Publication status: Published: Carleton Economic Papers
Handle: RePEc:car:carecp:04-19

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Cited by:
  1. Baake, Pio & von Schlippenbach, Vanessa, 2011. "Quality distortions in vertical relations," DICE Discussion Papers 18, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  2. Claire Chambolle & Sofia Villas-Boas, 2007. "Buyer Power through Producer's Differentiation," Working Papers hal-00243058, HAL.
  3. von Schlippenbach, Vanessa & Teichmann, Isabel, 2012. "The strategic use of private quality standards in food supply chains," DICE Discussion Papers 62, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  4. Battigalli, Pierpaulo & Fumagalli, Chiara & Polo, Michele, 2006. "Buyer Power and Quality Improvements," CEPR Discussion Papers 5814, C.E.P.R. Discussion Papers.

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