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Multiproduct Quality Competition: Fighting Brands and Product Line Pruning

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Author Info
David P. Myatt
Justin P. Johnson

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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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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: 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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Find related papers by JEL classification:
D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment

References listed on IDEAS
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  1. Raymond J. Deneckere & R. Preston McAfee, 1996. "Damaged Goods," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 5(2), pages 149-174, 06. [Downloadable!] (restricted)
  2. repec:att:wimass:19905 is not listed on IDEAS
  3. Champsaur, Paul & Rochet, Jean-Charles, 1989. "Multiproduct Duopolists," Econometrica, Econometric Society, vol. 57(3), pages 533-57, May. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. Kenneth L. Judd, 1985. "Credible Spatial Preemption," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 153-166, Summer. [Downloadable!] (restricted)
    Other versions:
  6. Joanna Stavins, 1996. "Price discrimination in the airline market: the effect of market concentration," Working Papers 96-7, Federal Reserve Bank of Boston. [Downloadable!]
  7. Brander, James A & Eaton, Jonathan, 1984. "Product Line Rivalry," American Economic Review, American Economic Association, vol. 74(3), pages 323-34, June. [Downloadable!] (restricted)
    Other versions:
  8. Stole, Lars A, 1995. "Nonlinear Pricing and Oligopoly," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 4(4), pages 529-62, Winter.
  9. Stokey, Nancy L, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 355-71, August. [Downloadable!] (restricted)
  10. De Fraja, Giovanni, 1996. "Product line competition in vertically differentiated markets," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 389-414, May. [Downloadable!] (restricted)
  11. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August. [Downloadable!] (restricted)
  12. 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. [Downloadable!] (restricted)
  13. Salant, Stephen W, 1989. "When Is Inducing Self-selection Suboptimal for a Monopolist?," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 391-97, May. [Downloadable!] (restricted)
  14. 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. [Downloadable!] (restricted)
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  15. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June. [Downloadable!] (restricted)
  16. David P. Myatt & Justin P. Johnson, 2005. "Multiproduct Cournot Oligopoly," Economics Series Working Papers 145, University of Oxford, Department of Economics. [Downloadable!]
  17. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Blackwell Publishing, vol. 49(1), pages 3-13, January. [Downloadable!] (restricted)
  18. Severin Borenstein, 1985. "Price Discrimination in Free-Entry Markets," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 380-397, Autumn. [Downloadable!] (restricted)
  19. 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. [Downloadable!] (restricted)
  20. Gilbert, Richard J & Matutes, Carmen, 1993. "Product Line Rivalry with Brand Differentiation," Journal of Industrial Economics, Blackwell Publishing, vol. 41(3), pages 223-40, September. [Downloadable!] (restricted)
  21. Esther Gal-Or, 1983. "Quality and Quantity Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 590-600, Autumn. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Olivier Coibion & Liran Einav & Juan Carlos Hallak, 2006. "Equilibrium Demand Elasticities across Quality Segments," Working Papers 550, Research Seminar in International Economics, University of Michigan. [Downloadable!]
    Other versions:
  2. Tommaso Valletti & Stefan Szymanski, 2006. "Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis," CEIS Research Paper 75, Tor Vergata University, CEIS. [Downloadable!]
    Other versions:
  3. Justin Johnson, 2005. "Entry-Level Products with Consumer Learning," Contributions to Economic Analysis & Policy, Berkeley Electronic Press, vol. 4(1), pages 1434-1434. [Downloadable!] (restricted)
  4. Carlo Reggiani, 2008. "Oligopolistic Non-Linear Pricing and Size Economies," Discussion Papers 08/07, Department of Economics, University of York. [Downloadable!]
  5. Sun, Ching-jen, 2007. "Dynamic Price Discrimination and Quality Provision Based on Purchase History," MPRA Paper 9855, University Library of Munich, Germany, revised Aug 2008. [Downloadable!]
  6. Simon P. Anderson & André de Palma, 2003. "Market Performance With Multiproduct Firms," Virginia Economics Online Papers 357, University of Virginia, Department of Economics. [Downloadable!]
  7. Carsten Eckel & J. Peter Neary, 2006. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Economics Series Working Papers 292, University of Oxford, Department of Economics. [Downloadable!]
    Other versions:
  8. Rasha Ahmed & Kathleen Segerson, 2007. "Emissions Control and the Regulation of Product Markets: The Case of Automobiles," Working papers 2007-40, University of Connecticut, Department of Economics. [Downloadable!]
  9. Fabian Herweg, . "Can price discrimination lead to product differentiation? A vertical differentiation model," Bonn Econ Discussion Papers bgse2_2007, University of Bonn, Germany. [Downloadable!]
  10. Reisinger, Markus, 2004. "Vertical Product Differentiation, Market Entry, and Welfare," Discussion Papers in Economics 479, University of Munich, Department of Economics. [Downloadable!]
  11. Ralph Siebert, 2003. "The Introduction of New Product Qualities by Incumbent Firms: Market Proliferation versus Cannibalization," CIG Working Papers SP II 2003-11, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
  12. Volker Nocke & Stephen Yeaple, 2006. "Globalization and Endogenous Firm Scope," PIER Working Paper Archive 06-015, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
    Other versions:
  13. David P. Myatt & Justin P. Johnson, 2005. "Multiproduct Cournot Oligopoly," Economics Series Working Papers 145, University of Oxford, Department of Economics. [Downloadable!]
  14. Marc Bourreau & Pinar Dogan & Matthieu Manant, 2007. "Modularity and Product Innovation in Digital Markets," Review of Network Economics, Concept Economics, vol. 6(2), pages 175-193, June. [Downloadable!]
  15. Justin P. Johnson & David P. Myatt, 2006. "On the Simple Economics of Advertising, Marketing, and Product Design," American Economic Review, American Economic Association, vol. 96(3), pages 756-784, June. [Downloadable!]
  16. Kobi Kriesler & Shmuel Nitzan, 2006. "Increasing sales by introducing non-salable items," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(8), pages 631-641. [Downloadable!]
  17. X. Henry Wang & Jingang Zhao, 2007. "Why Are Firms Sometimes Unwilling to Reduce Costs?," Working Papers 0703, Department of Economics, University of Missouri. [Downloadable!]
  18. S Lutz, 2005. "Regulatory Standards Can Lead to Predation," The School of Economics Discussion Paper Series 0509, Economics, The University of Manchester. [Downloadable!]
  19. Ron Borzekowski & Raphael Thomadsen & Charles Taragin, 2005. "Competition and price discrimination in the market for mailing lists," Finance and Economics Discussion Series 2005-56, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  20. Bing Jing, 2004. "Monotone Profitability Ranking in a Differentiated Oligopoly," Working Papers 04-28, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  21. Ralph Siebert, 1999. "Credible Vertical Preemption," CIG Working Papers FS IV 99-20, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG), revised Jul 2003. [Downloadable!]
    Other versions:
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