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Multiproduct Quality Competition: Fighting Brands and Product Line Pruning

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  • David P. Myatt
  • Justin P. Johnson

Abstract

Firms selling multiple quality-differentiated products frequently alter their product lines when a competitor enters the market. We present a model of multiproduct monopoly and duopoly using a general `upgrades` approach that yields a powerful analytical framework. We provide a simple theoretical explanation for the common strategies of using `fighting brands` and of product line `pruning`. We also present a general condition that guarantees that a monopolist will forsake market segmentation opportunities and sell but a single product. A number of previously studied issues can be addressed by our model, including inter-temporal price discrimiation and `damaged goods`.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 105.

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Date of creation: 01 Jun 2002
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Handle: RePEc:oxf:wpaper:105

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Keywords: multiproduct quality competition; fighting brands; product line pruning; focus on quality; price discrimination;

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  1. Eaton, B Curtis & Lipsey, Richard G, 1979. "The Theory of Market Pre-emption: The Persistence of Excess Capacity and Monopoly in Growing Spatial Markets," Economica, London School of Economics and Political Science, vol. 46(182), pages 149-58, May.
  2. Champsaur, Paul & Rochet, Jean-Charles, 1989. "Multiproduct Duopolists," Econometrica, Econometric Society, vol. 57(3), pages 533-57, May.
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  7. Kenneth L. Judd, 1983. "Credible Spatial Preemption," Discussion Papers 577, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  11. Jaskold Gabszewicz, Jean & Shaked, Avner & Sutton, John & Thisse, Jacques-Francois, 1986. "Segmenting the market: The monopolist's optimal product mix," Journal of Economic Theory, Elsevier, vol. 39(2), pages 273-289, August.
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  13. James Brander & Jonathan Eaton, 1982. "Product Line Rivalry," Working Papers 519, Queen's University, Department of Economics.
  14. Stokey, Nancy L, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 355-71, August.
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  17. Severin Borenstein & Nancy L. Rose, 1995. "Competition and Price Dispersion in the U.S. Airline Industry," NBER Working Papers 3785, National Bureau of Economic Research, Inc.
  18. David P. Myatt & Justin P. Johnson, 2005. "Multiproduct Cournot Oligopoly," Economics Series Working Papers 145, University of Oxford, Department of Economics.
  19. Esther Gal-Or, 1983. "Quality and Quantity Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 590-600, Autumn.
  20. Gale, Ian L & Holmes, Thomas J, 1993. "Advance-Purchase Discounts and Monopoly Allocation of Capacity," American Economic Review, American Economic Association, vol. 83(1), pages 135-46, March.
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