Competition, Incomplete Discrimination and Versioning
AbstractProducers of software viewers commonly offer basic versions of their products for freewhile more sophisticated versions are highly priced, thereby providing less attractive orlower valuations consumers with larger utility levels. We give some foundations to thisoutcome called versioning. We consider a duopoly in which firms offer differentiated goodsto a representative consumer; the buyer has distinct marginal valuations for the quality ofthe products; each producer perfectly knows the consumer’s taste for its own product, butremains uninformed about its taste for the rival’s product.When each product cannot be purchased in isolation of the other one, a phenomenon ofendogenous preferences arises since a firm’s offer to the consumer depends on the informationunknown by the rival firm. Multiple equilibria emerge and the consumer’s rent increases withhis valuation for one product and decreases with the valuation for the other product. Bycontrast, when each product can be purchased in isolation of the other one, at the uniqueequilibrium consumers with larger valuations for a product earn higher rents.The analysis is undertaken under two alternative pricing policies: in the partially-discriminatorycase, producers make use of the known information only; in the fully-discriminatorycase, each producer second-degree price discriminates the consumer according to the unknowninformation. We show that, sometimes, firms prefer partial to full discrimination,i.e., strategic ignorance of consumers’ tastes for the rival brand softens competition.
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Bibliographic InfoPaper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2004-20.
Date of creation: 2004
Date of revision:
Other versions of this item:
- DIAW, Khaled & POUYET, Jerome, 2004. "Competition, incomplete discrimination and versioning," CORE Discussion Papers 2004054, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Diaw, Khaled & Pouyet, Jérôme, 2004. "Competition, Incomplete Discrimination and Versioning," CEPR Discussion Papers 4589, C.E.P.R. Discussion Papers.
- Diaw, K. & Pouyet, J., 2004. "Competition, Incomplete Discrimination and Versioning," Discussion Paper 2004-69, Tilburg University, Center for Economic Research.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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