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Product differentiation in successive vertical oligopolies

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  • BELLEFLAMME, Paul
  • TOULEMONDE, Eric

Abstract

This is a successive oligopoly model with two varieties of a final product. Downstream firms choose one variety to sell on a final market. Upstream firms specialize in the production of one input specifically designed for one variety, but they also produce the input for the other variety at an extra cost. We show that as more downstream firms choose one particular variety, more upstream firms specialize in the input specific to that variety, and vice-versa. Multiple equilibria may result, and the softening effect of product differentiation on competition might not be strong enough to induce maximal differentiation.

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File URL: http://dx.doi.org/10.1111/1540-5982.t01-2-00001
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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -1720.

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Handle: RePEc:cor:louvrp:-1720

Note: In : Canadian Journal of Economic/Revue canadienne d'Economique, 36(3), 523-545, 2003
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  1. Matutes, Carmen & Regibeau, Pierre, 1992. "Compatibility and Bundling of Complementary Goods in a Duopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 37-54, March.
  2. Economides, Nicholas, 1989. "Desirability of Compatibility in the Absence of Network Externalities," American Economic Review, American Economic Association, vol. 79(5), pages 1165-81, December.
  3. Eaton, B Curtis & Schmitt, Nicolas, 1994. "Flexible Manufacturing and Market Structure," American Economic Review, American Economic Association, vol. 84(4), pages 875-88, September.
  4. S. P. Anderson & A. de Palma, 1997. "From local to global competition," THEMA Working Papers 97-10, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  5. Alford, Dave & Sackett, Peter & Nelder, Geoff, 2000. "Mass customisation -- an automotive perspective," International Journal of Production Economics, Elsevier, vol. 65(1), pages 99-110, April.
  6. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
  7. Julio J. Rotemberg & Garth Saloner, 1990. "Competition and Human Capital Accumulation: A Theory of Interregional Specialization and Trade," NBER Working Papers 3228, National Bureau of Economic Research, Inc.
  8. Matutes, Carmen & Regibeau, Pierre, 1989. "Standardization across Markets and Entry," Journal of Industrial Economics, Wiley Blackwell, vol. 37(4), pages 359-71, June.
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Cited by:
  1. Erkal, Nisvan, 2007. "Buyer-supplier interaction, asset specificity, and product choice," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 988-1010, October.
  2. Noriaki Matsushima & Tomomichi Mizuno, 2009. "Input specificity and product differentiation," ISER Discussion Paper 0745, Institute of Social and Economic Research, Osaka University.
  3. José Pontes, 2007. "Networks and firm location," The Annals of Regional Science, Springer, vol. 41(4), pages 897-909, December.
  4. Arijit Mukherjee & Piercarlo Zanchettin, 2012. "Vertical integration and product differentiation," Discussion Papers in Economics 12/17, Department of Economics, University of Leicester, revised Sep 2012.
  5. José Pedro Pontes, 2004. "Agglomeration in a Vertically-linked Oligopoly," Working Papers Department of Economics 2004/06, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  6. André Rocha & José Pedro Pontes, 2005. "Spatial Cournot Oligopoly with Vertical Linkages," Working Papers Department of Economics 2005/11, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  7. Jose Pedro Pontes, 2005. "Input Specificity and Location," Working Papers Department of Economics 2005/01, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  8. E. Bacchiega & O. Bonroy, 2012. "Vertical relations and number of channels in quality-differentiated markets," Working Papers wp823, Dipartimento Scienze Economiche, Universita' di Bologna.

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