Product Differentiation and Price Competition Between a Safe and a Risky Seller
AbstractWe consider a market served by a safe and a risky seller. While the expensive safe seller can solve the problems of all consumers, the cheap risky seller can help a consumer only with a certain probability. The risky seller's success probabilities are distributed across consumers and by the choice of her quality the risky seller determines the shape of this distribution. If the risky seller fails, a consumer ends up with the safe seller, paying for the service twice. We study the price-quality competition between the two providers. We show that the principle of maximum product differentiation does not hold in our model, i.e. the risky seller does not choose the minimum quality level in order to relax price competition
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2041.
Date of creation: Dec 1998
Date of revision:
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Other versions of this item:
- Winand Emons, 2000. "Product Differentiation and Price Competition Between a Safe and a Risky Seller," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 156(3), pages 431-, September.
- Winand Emons, 1998. "Product Differentiation and Price Competition between a Safe and a Risky Seller," Diskussionsschriften dp9808, Universitaet Bern, Departement Volkswirtschaft.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- 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
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- Uwe Dulleck & Rudolf Kerschbamer, 2007.
"Experts vs. Discounters: Consumer Free Riding and Experts Withholding Advice in Markets for Credence Goods,"
2007-21, Faculty of Economics and Statistics, University of Innsbruck.
- Dulleck, Uwe & Kerschbamer, Rudolf, 2009. "Experts vs. discounters: Consumer free-riding and experts withholding advice in markets for credence goods," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 15-23, January.
- Uwe Dulleck & Rudolf Kerschbamer, 2005. "Experts vs. discounters: consumer free riding and experts withholding advice in markets for credence goods," Economics working papers 2005-09, Department of Economics, Johannes Kepler University Linz, Austria.
- Dulleck, Uwe & Kerschbamer, Rudolf, 2005. "Experts vs Discounters: Competition and Market Unravelling When Consumers Do Not Know What they Need," CEPR Discussion Papers 5242, C.E.P.R. Discussion Papers.
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