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Product lines and price discrimination in the European car market

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  • GINSBURGH , Victor
  • WEBER, Shlomo

Abstract

In this paper we consider a model of oligopolistic competition where firms make a two‐dimensional product line decision. They choose a location in style space, thus inducing horizontal differentiation, and produce different qualities (a product line) of a given good (vertical differentiation), consumed by a population of customers who differ in their income and preference for style. We prove the existence of a non‐cooperative equilibrium and show that, as the degree of competition increases, prices approach marginal cost. The approach is used to show that European car producers seem indeed to use product lines to discriminate across EU countries.
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Suggested Citation

  • GINSBURGH , Victor & WEBER, Shlomo, 2002. "Product lines and price discrimination in the European car market," LIDAM Reprints CORE 1547, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:1547
    DOI: 10.1111/1467-9957.00286
    Note: In : The Manchester School, 70(1), 101-114, 2002
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    1. Gilbert, Richard J & Matutes, Carmen, 1993. "Product Line Rivalry with Brand Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 41(3), pages 223-240, September.
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    8. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
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    11. Mertens, Yves & Ginsburgh, Victor, 1985. "Product Differentiation and Price Discrimination in the European Community: The Case of Automobiles," Journal of Industrial Economics, Wiley Blackwell, vol. 34(2), pages 151-166, December.
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    Cited by:

    1. Silvia Ferreira Jorge & Cesaltina Pacheco Pires, 2004. "Delivered versus mill nonlinear pricing in free entry markets," Nova SBE Working Paper Series wp459, Universidade Nova de Lisboa, Nova School of Business and Economics.
    2. Dvir, Eyal & Strasser, Georg, 2018. "Does marketing widen borders? Cross-country price dispersion in the European car market," Journal of International Economics, Elsevier, vol. 112(C), pages 134-149.
    3. José A. Novo‐Peteiro, 2023. "Product design with attribute dependence," Manchester School, University of Manchester, vol. 91(4), pages 361-385, July.
    4. Gianpaolo Rossini & Paolo Zanghieri, 2008. "What Drives Price Differentials of Consumables in Europe? Size? Affluence? Or Both?," Open Economies Review, Springer, vol. 19(1), pages 121-134, February.

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