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Multiproduct Duopoly with Vertical Di¤erentiation

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Author Info

  • Yi-Ling Cheng

    ()
    (National Taiwan University)

  • Shin-Kun Peng

    ()
    (Institute of Economics, Academia Sinica, Taipei, Taiwan
    National Taiwan University)

  • Takatoshi Tabuchi

    ()
    (Faculty of Economics, University of Tokyo)

Abstract

The paper investigates a two-stage competition in a vertical di¤erentiated industry, where each firm produces an rbitrary number of similar qualities and sells them to heterogeneous consumers. We show that, when unit costs of quality are increasing and quadratic, each firm has an incentive to provide an interval of qualities. The finding is in sharp contrast to the single-quality outcome when the market coverage is exogenously determined. We also show that allowing for an interval of qualities intensi es competition, lowers the profi ts of each fi rm and raises the consumer surplus and the social welfare in comparison to the single-quality duopoly.

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Bibliographic Info

Paper provided by Institute of Economics, Academia Sinica, Taipei, Taiwan in its series IEAS Working Paper : academic research with number 10-A004.

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Length: 23 pages
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:sin:wpaper:10-a004

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Related research

Keywords: multiproduct firms; market segmentation; quality competition; vertical product di¤erentiation.;

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References

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  1. Bonnisseau Jean-Marc & Lahmandi-Ayed Rim, 2006. "Vertical Differentiation: Multiproduct Strategy to Face Entry?," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-14, November.
  2. K. Sridhar Moorthy, 1988. "Product and Price Competition in a Duopoly," Marketing Science, INFORMS, vol. 7(2), pages 141-168.
  3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
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Cited by:
  1. Evdokia Dritsa & Eleftherios Zacharias, 2012. "Price Competition in a Duopoly Characterized by Positional Effects," Working Papers 12-21, NET Institute.

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