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Product Differentation and Market Power

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  • Egbert DIERKER
  • Hildegard DIERKER

Abstract

Assuming asymmetry across firms and constant unit costs Perloff and Salop (1985) show: If product differentiation increases, the prices rise in a symmetric equilibrium. This raise the question of whether, in general, more product differentiation leads to higher market prices. Giving up the symmetry and the constant unit costs assumptions we present examples in which at least one firm lowers its equilibrium price when product differentiation increases. We formulate a model of product differentiation and state and discuss, within the theory of supermodular games, conditions ensuring that all firms raise their prices in a Nash equilibrium if product differentiation increases.

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Bibliographic Info

Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number vie9804.

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Date of creation: Sep 1998
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Publication status: published in Advances in Mathematical Economics, Vol. 1, 1999, 39-67.
Handle: RePEc:vie:viennp:vie9804

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Web page: http://www.univie.ac.at/vwl

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Cited by:
  1. Richards, Timothy J. & Hamilton, Stephen F. & Patterson, Paul M., 2007. "Spatial Competition in Private Labels," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 9840, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Luis C. Corchon & Clara Eugenia Garcia, 2005. "Technology Transfer In Oligopolistic Markets With Heterogeneous Goods," Economics Working Papers we057036, Universidad Carlos III, Departamento de Economía.
  3. Michael B. Ward & Jay P. Shimshack & Jeffrey M. Perloff & J. Michael Harris, 2002. "Effects of the Private-Label Invasion in Food Industries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 961-973.
  4. Hoernig, Steffen H., 2003. "Existence of equilibrium and comparative statics in differentiated goods Cournot oligopolies," International Journal of Industrial Organization, Elsevier, vol. 21(7), pages 989-1019, September.
  5. Martin Peitz, 1998. "- Consumer Heterogeneity And Market Imperfections," Working Papers. Serie AD 1998-16, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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