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Multiproduct Cournot Oligopoly

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  • David P. Myatt
  • Justin P. Johnson

Abstract

We present a general Cournot model in which each firm may sell multiple quality-differentiated products. We use an upgrades approach, working not with the actual products, but instead with upgrades from one quality to the next. The properties of single-product Cournot models carry over to the supply of upgrades, but not necessarily to the supply of complete products. A firm`s product line is determined by the properties of demand, its costs, and competitor characteristics. For symmetric firms, these determinants reduce to returns to quality and changes in demand elasticity as quality increases. For asymmetric firms whose (potentially endogenous) technological capabilities are defined by their maximum feasible qualities, gaps in product lines are determined precisely by the capabilities of lesser rivals. Strategic commitment to product lines prior to quantity competition is considered. Incentives to so commit are markedly different from those under price-setting models.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 145.

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Date of creation: 01 Apr 2005
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Handle: RePEc:oxf:wpaper:145

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Keywords: multiproduct quality competition; multiproduct oligopoly; brands; Cournot competition; price discrimination; product lines;

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Citations

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Cited by:
  1. Carsten Eckel & J. Peter Neary, 2010. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 188-217.
  2. 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.
  3. Justin P. Johnson & David P. Myatt, 2003. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," American Economic Review, American Economic Association, vol. 93(3), pages 748-774, June.
  4. Carlo Reggiani, 2008. "Oligopolistic Non-Linear Pricing and Size Economies," Discussion Papers 08/07, Department of Economics, University of York.

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