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The Economics of Cannibalization: A Duopoly in which Firms Supply Two Vertically Differentiated Products

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Author Info

  • Ryoma Kitamura

    ()
    (Graduate School of Economics, Kwansei Gakuin University)

  • Tetsuya Shinkai

    ()
    (School of Economics, Kwansei Gakuin University)

Abstract

In this paper, we consider and propose a new duopoly model of cannibalization in which firms produce and sell two vertically differentiated products in the same market. We show that each firm produces the high-quality good more (less) than the low-quality good if the upper limit of taste of consumers is sufficiently high(not so high). Further, we find that the increase in the difference in quality between two goods leads to cannibalization, such that the high-quality goods keep out the low-quality goods from the market. Furthermore, we conduct a welfare analysis.

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File URL: http://192.218.163.163/RePEc/pdf/kgdp100.pdf
File Function: First version, 2013
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Bibliographic Info

Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 100.

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Length: 21 pages
Date of creation: Feb 2013
Date of revision: Feb 2013
Handle: RePEc:kgu:wpaper:100

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Keywords: Multiproduct firm; Duopoly; Cannibalization;

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  1. Glenn Ellison, 2003. "A Model of Add-on Pricing," NBER Working Papers 9721, National Bureau of Economic Research, Inc.
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Cited by:
  1. Ryoma Kitamura & Tetsuya Shinkai, 2014. "Cannibalization may Allow a Cost-inefficient Firm to Earn more than a Cost-effcient Firm in a Duopoly with Two Vertically Differentiated Goods," Discussion Paper Series 113, School of Economics, Kwansei Gakuin University, revised Jan 2014.
  2. Ryoma Kitamura, 2014. "Network externalities between carriers or machines:How they work in the smartphone industry," Discussion Paper Series 117, School of Economics, Kwansei Gakuin University, revised Mar 2014.

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