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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Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number
04-19.
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Pierpaolo Battigalli & Chiara Fumagalli & Michele Polo, 2006.
"Buyer Power and Quality Improvement,"
Working Papers
310, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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