Product Differentation and Market Power
AbstractAssuming 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 InfoPaper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number vie9804.
Date of creation: Sep 1998
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Publication status: published in Advances in Mathematical Economics, Vol. 1, 1999, 39-67.
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Web page: http://www.univie.ac.at/vwl
Other versions of this item:
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
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