Competition, Incomplete Discrimination and Versioning
AbstractProducers of software viewers commonly other basic versions of their products for free while more sophisticated versions are highly priced, thereby providing less attractive or lower valuations consumers with larger utility levels.We give some foundations to this outcome called versioning.We consider a duopoly in which firms other di erentiated goods to a representative consumer; the buyer has distinct marginal valuations for the quality of the products; each producer perfectly knows the consumers taste for its own product, but remains uninformed about its taste for the rivals product.When each product cannot be purchased in isolation of the other one, a phenomenon of endogenous preferences arises since a firms o er to the consumer depends on the information unknown by the rival firm.Multiple equilibria emerge and the consumers rent increases with his valuation for one product and decreases with the valuation for the other product.By contrast, when each product can be purchased in isolation of the other one, at the unique equilibrium consumers with larger valuations for a product earn higher rents.The analysis is undertaken under two alternative pricing policies: in the partially-discriminatory case, producers make use of the known information only; in the fully-discriminatory case, each producer second-degree price discriminates the consumer according to the unknown information.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 Tilburg University, Center for Economic Research in its series Discussion Paper with number 2004-69.
Date of creation: 2004
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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).
- Khaled Diaw & Jérôme Pouyet, 2004. "Competition, Incomplete Discrimination and Versioning," Working Papers 2004-20, Centre de Recherche en Economie et Statistique.
- Diaw, Khaled & Pouyet, Jérôme, 2004. "Competition, Incomplete Discrimination and Versioning," CEPR Discussion Papers 4589, C.E.P.R. Discussion Papers.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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