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 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 EC countries.
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Paper provided by Catholique de Louvain - Center for Operations Research and Economics in its series Papers with number
9607.
Length: 15 pages Date of creation: 1996 Date of revision: Handle: RePEc:fth:louvco:9607
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Find related papers by JEL classification: L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment
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