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Product Diversity in Asymmetric Oligopoly: Is the Quality of Consumer Goods too Low?

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  • Simon P. Anderson
  • André de Palma

Abstract

We analyze an oligopoly model with horizontal di¤erentiation and quality di¤erences. High quality goods are over-priced and under-produced. When the market is fairly covered, low quality products may be pro…table when their social contribution is negative, leading to too many products in equilibrium. In a relatively uncovered market, even low quality goods are under-produced and there may be too few entrants. However, when …xed costs di¤er across qualities, the market may produce low quality goods when it should produce high quality ones. The model is calibrated using market data for yoghurt.

Suggested Citation

  • Simon P. Anderson & André de Palma, 2000. "Product Diversity in Asymmetric Oligopoly: Is the Quality of Consumer Goods too Low?," Virginia Economics Online Papers 349, University of Virginia, Department of Economics.
    • Handle: RePEc:vir:virpap:349
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    References listed on IDEAS

    as
    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(2), pages 217-235.
    2. Anderson, Simon P & de Palma, Andre & Nesterov, Yurii, 1995. "Oligopolistic Competition and the Optimal Provision of Products," Econometrica, Econometric Society, vol. 63(6), pages 1281-1301, November.
    3. Raymond Deneckere & Michael Rothschild, 1986. "Monopolistic Competition and Preference Diversity," Discussion Papers 684, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Product di¤erentiation; asymmetric oligopoly; quality; optimum and equilibrium variety; discrete choice models.;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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