Price Responses to Market Entry With and Without Endogenous Product Choice
AbstractTextbook wisdom says that competition yields lower prices and higher consumer surplus than monopoly. We show in two versions of a simple location-product differentiation model with and without endogenous choice of products that these two results have to be qualified. In both models, more than half of the reasonable parameter values lead to higher prices with duopoly than with monopoly. If the product characteristics are exogenous to the firms, consumers may even be be better off with monopoly in average.
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Bibliographic InfoPaper provided by Universität Potsdam, Wirtschafts- und Sozialwissenschaftliche Fakultät in its series Volkswirtschaftliche Diskussionsbeiträge with number 81.
Date of creation: Nov 2005
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More information through EDIRC
Product differentiation; Hotelling; Price and Welfare Effects of Market Entry;
Find related papers by JEL classification:
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-11-12 (All new papers)
- NEP-COM-2005-11-12 (Industrial Competition)
- NEP-IND-2005-11-12 (Industrial Organization)
- NEP-MIC-2005-11-12 (Microeconomics)
- NEP-MKT-2005-11-12 (Marketing)
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