IDEAS home Printed from https://ideas.repec.org/p/kgu/wpaper/100.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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.

Suggested Citation

  • Ryoma Kitamura & Tetsuya Shinkai, 2013. "The Economics of Cannibalization: A Duopoly in which Firms Supply Two Vertically Differentiated Products," Discussion Paper Series 100, School of Economics, Kwansei Gakuin University, revised Feb 2013.
    • Handle: RePEc:kgu:wpaper:100
    as

    Download full text from publisher

    File URL: http://192.218.163.163/RePEc/pdf/kgdp100.pdf
    File Function: First version, 2013
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Glenn Ellison, 2005. "A Model of Add-On Pricing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 585-637.
    2. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    3. Kenneth L. Judd, 1985. "Credible Spatial Preemption," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 153-166, Summer.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ryoma Kitamura & Tetsuya Shinkai, 2014. "Cannibalization within the Single Vertically Di¤erentiated Duopoly," Discussion Paper Series 124, School of Economics, Kwansei Gakuin University, revised Dec 2014.
    2. Ryoma Kitamura, 2015. "Cost Reduction can Decrease Pro t and Welfare in a Monopoly," Discussion Paper Series 133, School of Economics, Kwansei Gakuin University, revised Jul 2015.
    3. Tetsuya Shinkai & Ryoma Kitamura, 2018. "Product Line Strategy within a Vertically Differentiated Duopoly under Non-negativity Outputs Constraints," Discussion Paper Series 179, School of Economics, Kwansei Gakuin University.
    4. 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.
    5. Kitamura, Ryoma & Shinkai, Tetsuya, 2015. "Product line strategy within a vertically differentiated duopoly," Economics Letters, Elsevier, vol. 137(C), pages 114-117.
    6. 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.
    7. Tetsuya Shinkai & Ryoma Kitamura, 2021. "How Do the Relative Superiority of a High-quality Good and Cost Inefficiency between Firms Affect Product Lines in Multiproduct Firms?," Discussion Paper Series 230, School of Economics, Kwansei Gakuin University.
    8. Ryoma Kitamura & Tetsuya Shinkai, 2014. "Strategic Choice on Product Line in Vertically Differentiated Duopoly," Discussion Paper Series 120, School of Economics, Kwansei Gakuin University, revised Aug 2014.
    9. Ryoma Kitamura & Tetsuya Shinkai, 2015. "Product Line Strategy in a Vertically Di¤erentiated Duopoly," Discussion Paper Series 134, School of Economics, Kwansei Gakuin University, revised Aug 2015.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    2. Naixin Zhu, 2023. "Dissertation on Applied Microeconomics of Freemium Pricing Strategies in Mobile App Market," Papers 2305.09479, arXiv.org.
    3. Bianchi, Milo & Bouvard, Matthieu & Gomes, Renato & Rhodes, Andrew & Shreeti, Vatsala, 2023. "Mobile payments and interoperability: Insights from the academic literature," Information Economics and Policy, Elsevier, vol. 65(C).
    4. Jonathan Levin, 2011. "The Economics of Internet Markets," Discussion Papers 10-018, Stanford Institute for Economic Policy Research.
    5. Bourreau, Marc & Manenti, Fabio M., 2023. "Selling cross-border in online markets: The impact of the ban on geoblocking strategies," International Journal of Industrial Organization, Elsevier, vol. 86(C).
    6. Guofang Nan & Xingtao Li & Zan Zhang & Minqiang Li, 0. "Optimal pricing for new product entry under free strategy," Information Technology and Management, Springer, vol. 0, pages 1-19.
    7. Ryoma Kitamura & Tetsuya Shinkai, 2014. "Cannibalization within the Single Vertically Di¤erentiated Duopoly," Discussion Paper Series 124, School of Economics, Kwansei Gakuin University, revised Dec 2014.
    8. Miao, Chun-Hui, 2010. "Consumer myopia, standardization and aftermarket monopolization," European Economic Review, Elsevier, vol. 54(7), pages 931-946, October.
    9. Ryoma Kitamura & Tetsuya Shinkai, 2014. "Strategic Choice on Product Line in Vertically Differentiated Duopoly," Discussion Paper Series 120, School of Economics, Kwansei Gakuin University, revised Aug 2014.
    10. Tetsuya Shinkai & Ryoma Kitamura, 2019. "Production Substitution of Goods Within and Between Firms in a Multiproduct Duopoly," Discussion Paper Series 197, School of Economics, Kwansei Gakuin University.
    11. Guofang Nan & Xingtao Li & Zan Zhang & Minqiang Li, 2018. "Optimal pricing for new product entry under free strategy," Information Technology and Management, Springer, vol. 19(1), pages 1-19, March.
    12. Justin P. Johnson & David P. Myatt, 2006. "Multiproduct Cournot oligopoly," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 583-601, September.
    13. Koski, Heli A. & Majumdar, Sumit K., 2002. "Paragons of virtue? Competitor entry and the strategies of incumbents in the U.S. local telecommunications industry," Information Economics and Policy, Elsevier, vol. 14(4), pages 453-480, December.
    14. 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.
    15. Wiebke Roß & Jens Weghake, 2018. "Wa(h)re Liebe: Was Online-Dating-Plattformen über zweiseitige Märkte lehren," TUC Working Papers in Economics 0017, Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal).
    16. Marta Gancarczyk, 2010. "Model schyłku i odrodzenia klastrów," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 1-21.
    17. María Fernanda Viecens, 2009. "Compatibility with Firm Dominance," Working Papers 2009-12, FEDEA.
    18. Shaheer, Noman Ahmed & Li, Sali, 2020. "The CAGE around cyberspace? How digital innovations internationalize in a virtual world," Journal of Business Venturing, Elsevier, vol. 35(1).
    19. Estelle Malavolti, 2016. "Single Till or Dual Till at airports: a Two-Sided Market Analysis," Post-Print hal-01406372, HAL.
    20. Jarle Hildrum & Dieter Ernst & Jan Fagerberg, 2011. "The Complex Interaction between Global Production Networks, Digital Information Systems and International Knowledge Transfers," Chapters, in: Cristiano Antonelli (ed.), Handbook on the Economic Complexity of Technological Change, chapter 16, Edward Elgar Publishing.

    More about this item

    Keywords

    Multiproduct firm; Duopoly; Cannibalization;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kgu:wpaper:100. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Toshihiro Okada (email available below). General contact details of provider: https://edirc.repec.org/data/dekgujp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.