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

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Author Info
Simon P. Anderson ()
André de Palma ()

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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.

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File URL: http://www.virginia.edu/economics/RePEc/vir/virpap/papers/virpap349.pdf
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Publisher Info
Paper provided by University of Virginia, Department of Economics in its series Virginia Economics Online Papers with number 349.

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Length: 26 pages
Date of creation: Jun 2000
Date of revision:
Handle: RePEc:vir:virpap:349

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Web page: http://www.virginia.edu/economics/home.html

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Related research
Keywords: Product di¤erentiation; asymmetric oligopoly; quality; optimum and equilibrium variety; discrete choice models.;

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Find related papers by 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 and Pricing - - - Oligopoly and Other Forms of Market Imperfection

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  1. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Blackwell Publishing, vol. 43(2), pages 217-35, June. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
    Other versions:
  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. [Downloadable!]
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Urquiola, Miguel & Verhoogen, Eric A., 2007. "Class Size and Sorting in Market Equilibrium: Theory and Evidence," CEPR Discussion Papers 6425, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. ANDERSON, Simon & de PALMA, AndrŽ, 2003. "Price dispersion," CORE Discussion Papers 2003032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
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  3. Reynald-Alexandre Laurent, 2007. "Probalilistic duopoly with differentiation by attributes," PSE Working Papers 2007-27, PSE (Ecole normale supérieure). [Downloadable!]
  4. Andre de Palma & Stef Proost, 2004. "Imperfect competition and congestion in the City," Energy, Transport and Environment Working Papers Series ete0409, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment. [Downloadable!]
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  5. Daniel P. Kessler & Jeffrey J. Geppert, 2005. "The Effects of Competition on Variation in the Quality and Cost of Medical Care," NBER Working Papers 11226, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Rossella Argenziano, 2007. "Differentiated Networks: Equilibrium and Efficiency," Economics Discussion Papers 638, University of Essex, Department of Economics. [Downloadable!]
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  7. Bart Bronnenberg, 2008. "Brand competition in CPG industries: Sustaining large local advantages with little product differentiation," Quantitative Marketing and Economics, Springer, vol. 6(1), pages 79-107, March. [Downloadable!] (restricted)
  8. Simon P. Anderson & Régis Renault, 2006. "comparative Advertising," THEMA Working Papers 2006-18, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
  9. Rennhoff, Adam D., 2004. "Paying For Shelf Space: An Investigation Of Merchandising Allowances In The Grocery Industry," Research Reports 25155, University of Connecticut, Food Marketing Policy Center. [Downloadable!]
  10. Giorgos Stamatopoulos, 2008. "On the possibility of licensing in a market with logit demand functions," Economics Bulletin, Economics Bulletin, vol. 4(17), pages 1-11. [Downloadable!]
  11. Andre de Palma & Stef Proost & Fay Dunkerley, 2004. "Imperfect Competition and Congestion in a City with asymmetric subcenters," Energy, Transport and Environment Working Papers Series ete0411, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment. [Downloadable!]
  12. Marina Giacomo, 2008. "GMM estimation of a structural demand model for yogurt and the effects of the introduction of new brands," Empirical Economics, Springer, vol. 34(3), pages 537-565, June. [Downloadable!] (restricted)
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