First-Degree Discrimination by a Duopoly: Pricing and Quality Choice
AbstractThe paper investigates competition in price schedules among vertically differentiated dupolists. First order price discrimination is the unique Nash equilibrium of a sequential game in which firms determine first whether or not to commit to a uniform price, and then simultaneously choose either a single price of a price schedule. Whether the profits earned by both firms are larger or smaller under discrimination than under uniform pricing depends on the quality gap between firms, and on the disparity of consumer preferences. Firms engaged in first degree discrimination choose quality levels that are optimal from a welfare perspective. The paper also reflects on implications of these findings for pricing policies of an incumbent threatened by entry.
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Bibliographic InfoPaper provided by Universite de Montreal, Departement de sciences economiques in its series Cahiers de recherche with number 2005-01.
Length: 24 pages
Date of creation: 2005
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Other versions of this item:
- Encaoua David & Hollander Abraham, 2007. "First-Degree Discrimination by a Duopoly: Pricing and Quality Choice," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-21, May.
- David Encaoua & Abraham Hollander, 2007. "First-Degree Discrimination by a Duopoly: Pricing and Quality Choice," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00177604, HAL.
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
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