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Product Differentiation in Successive Vertical Oligopolies

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  • Paul Belleflamme

    (Queen Mary, University of London)

  • Eric Toulemonde

    (University of Namur)

Abstract

This is a successive oligopoly model with two brands. Each downstream firm chooses one brand to sell on a final market. The upstream firms specialize in the production of one input specifically designed for the production of one brand, but they also produce the input for the other brand at an extra cost. We show that when more downstream firms choose one brand, more upstream firms will specialize in the input specific to that brand, and vice versa. Hence, multiple equilibria are possible and the softening effect of brand differentiation on competition might not be strong enough to induce maximal differentiation. The existence of equilibria and their welfare performance are also examined.

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Bibliographic Info

Paper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 421.

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Date of creation: Oct 2000
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Handle: RePEc:qmw:qmwecw:wp421

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Keywords: Product differentiation; Vertical relationships; Oligopoly;

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  1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  2. Economides, Nicholas, 1989. "Desirability of Compatibility in the Absence of Network Externalities," American Economic Review, American Economic Association, vol. 79(5), pages 1165-81, December.
  3. Curtis Eaton, B. & Schmitt, N., 1991. "Flexible Manufacturing and Market Structure," Papers, Tasmania - Department of Economics 1991-02, Tasmania - Department of Economics.
  4. NORMAN, George & THISSE, Jacques-François, . "Technology choice and market structure: strategic aspects of flexible manufacturing," CORE Discussion Papers RP -1414, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Rotemberg, Julio J. & Saloner, Garth, 2000. "Competition and human capital accumulation: a theory of interregional specialization and trade," Regional Science and Urban Economics, Elsevier, vol. 30(4), pages 373-404, July.
  6. Anderson, Simon P. & de Palma, Andre, 2000. "From local to global competition," European Economic Review, Elsevier, vol. 44(3), pages 423-448, March.
  7. Alford, Dave & Sackett, Peter & Nelder, Geoff, 2000. "Mass customisation -- an automotive perspective," International Journal of Production Economics, Elsevier, Elsevier, vol. 65(1), pages 99-110, April.
  8. Michael A. Einhorn, 1992. "Mix and Match Compatibility with Vertical Product Dimensions," RAND Journal of Economics, The RAND Corporation, vol. 23(4), pages 535-547, Winter.
  9. Matutes, Carmen & Regibeau, Pierre, 1989. "Standardization across Markets and Entry," Journal of Industrial Economics, Wiley Blackwell, vol. 37(4), pages 359-71, June.
  10. Matutes, Carmen & Regibeau, Pierre, 1992. "Compatibility and Bundling of Complementary Goods in a Duopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 37-54, March.
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Cited by:
  1. Matsushima, Noriaki, 2004. "Technology of upstream firms and equilibrium product differentiation," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 22(8-9), pages 1091-1114, November.
  2. Arijit Mukherjee & Piercarlo Zanchettin, 2012. "Vertical integration and product differentiation," Discussion Papers in Economics 12/17, Department of Economics, University of Leicester, revised Sep 2012.
  3. Jose Pedro Pontes, 2005. "Input Specificity and Location," Working Papers Department of Economics, ISEG - School of Economics and Management, Department of Economics, University of Lisbon 2005/01, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  4. Noriaki Matsushima & Tomomichi Mizuno, 2009. "Input specificity and product differentiation," ISER Discussion Paper 0745, Institute of Social and Economic Research, Osaka University.
  5. José Pontes, 2007. "Networks and firm location," The Annals of Regional Science, Springer, Springer, vol. 41(4), pages 897-909, December.
  6. José Pedro Pontes, 2004. "Agglomeration in a Vertically-linked Oligopoly," Working Papers Department of Economics, ISEG - School of Economics and Management, Department of Economics, University of Lisbon 2004/06, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  7. E. Bacchiega & O. Bonroy, 2012. "Vertical relations and number of channels in quality-differentiated markets," Working Papers wp823, Dipartimento Scienze Economiche, Universita' di Bologna.
  8. Erkal, Nisvan, 2007. "Buyer-supplier interaction, asset specificity, and product choice," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 25(5), pages 988-1010, October.
  9. André Rocha & José Pedro Pontes, 2005. "Spatial Cournot Oligopoly with Vertical Linkages," Working Papers Department of Economics, ISEG - School of Economics and Management, Department of Economics, University of Lisbon 2005/11, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.

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