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Vertical Product Differentiation and Entry Deterrence

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Author Info
Lutz, Stefan

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Abstract

This paper studies how the existence of a potential entrant influences an incumbent’s choice of quality in a model of vertical product differentiation and entry. Both firms face fixed set-up costs and quality-dependent costs of production, and compete on quality and price. With identical quality-dependent costs, the incumbent will always deter entry if possible, i.e. if fixed costs are high. Quality will be set at a level lower than the optimal quality set if entry was accommodated. If entry is not blockaded, quality will be set at a level strictly lower than the optimal quality set under monopoly.

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Publisher Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1455.

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Date of creation: Aug 1996
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Handle: RePEc:cpr:ceprdp:1455

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Related research
Keywords: Entry; Oligopoly; Product Differentiation; Quality Standards;

Other versions of this item:

Find related papers by JEL classification:
L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

References listed on IDEAS
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.:

  1. Weber, S., 1989. "On Hierarchical Spatial Competition," Papers 89-04, York (Canada) - Department of Economics.
    Other versions:
  2. Choi, Chong Ju & Shin, Hyun Song, 1992. "A Comment on a Model of Vertical Product Differentiation," Journal of Industrial Economics, Blackwell Publishing, vol. 40(2), pages 229-31, June. [Downloadable!] (restricted)
  3. Anglin, Paul M, 1992. "The Relationship between Models of Horizontal and Vertical Differentiation," Bulletin of Economic Research, Blackwell Publishing, vol. 44(1), pages 1-20, January.
  4. Palfrey, Thomas R, 1984. "Spatial Equilibrium with Entry," Review of Economic Studies, Blackwell Publishing, vol. 51(1), pages 139-56, January. [Downloadable!] (restricted)
  5. Hung, N. M. & Schmitt, Nicolas, 1988. "Quality competition and threat of entry in duopoly," Economics Letters, Elsevier, vol. 27(3), pages 287-292. [Downloadable!] (restricted)
  6. Weber, Shlomo, 1992. "On Hierarchical Spatial Competition," Review of Economic Studies, Blackwell Publishing, vol. 59(2), pages 407-25, April. [Downloadable!] (restricted)
  7. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Blackwell Publishing, vol. 49(1), pages 3-13, January. [Downloadable!] (restricted)
  8. Donnenfeld, Shabtai & Weber, Shlomo, 1992. "Vertical product differentiation with entry," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 449-472, September. [Downloadable!] (restricted)
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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.)

  1. Nilsson, Tomas & Foster, Ken, 2005. "Certification of Pork Products," 2005 Annual meeting, July 24-27, Providence, RI 19350, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  2. Rajat Acharyya & Maria D.C. Garcia-Alonso, 2009. "Weak IPR and Imitation in the South and International Exhaustion of Patent Rights in the North for Innovated Drugs: A Policy Game," Studies in Economics 0919, Department of Economics, University of Kent. [Downloadable!]
  3. Lander Beloki & Jose María Usategui, 2005. "Vertical Differentiation and Entry Deterrence: A Reconsideration," DFAEII Working Papers 200506, University of the Basque Country - Department of Foundations of Economic Analysis II. [Downloadable!]
  4. Beschorner, Patrick Frank Ernst, 2008. "Liberalization of the Postal Service Market in Europe: Entry with Universal Service and Partial Coverage," ZEW Discussion Papers 08-122, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  5. Yong-Hwan Noh & Giancarlo Moschini, 2006. "Vertical Product Differentiation, Entry-Deterrence Strategies, and Entry Qualities," Review of Industrial Organization, Springer, vol. 29(3), pages 227-252, November. [Downloadable!] (restricted)
    Other versions:
  6. BOCCARD, Nicolas & WAUTHY, Xavier, 1999. "Relaxing Bertrand competition : capacity commitment beats quality differentiation," CORE Discussion Papers 1999056, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  7. Allard Made & Lambert Schoonbeek, 2009. "Entry Facilitation by Environmental Groups," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 43(4), pages 457-472, August. [Downloadable!] (restricted)
  8. Nilsson, Tomas & Foster, Kenneth, 2004. "Product And Process Certification In Imperfectly Competitive Markets," 2004 Annual meeting, August 1-4, Denver, CO 19933, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  9. Lutz, Stefan, 2003. "International Coordination of Quality Standards and Vertical Product Differentiation," ZEW Discussion Papers 03-41, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  10. Mario Pezzino, 2006. "Minimum quality standards with more than two firms under Cournot competition," The School of Economics Discussion Paper Series 0613, Economics, The University of Manchester. [Downloadable!]
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