This study analyzes the optimal provision of goods in a market characterized by vertical product differentiation. We consider a duopoly model in which incumbents may introduce a new product with certain quality, and decide whether to keep or to withdraw the existing product from the market. We find that the strategic and cannibalization effects dominate, such that no room is left for discrimination among consumers. The innovator always withdraws the existing product from the market, in order to reduce price competition and to avoid cannibalizing its new product demand. In contrast to horizontally differentiated markets, firms are better off not to offer a range or interval of product qualities in vertically differentiated markets. Hence, firms fare better, despite offering a smaller variety of goods.
ZUSAMMENFASSUNG - (Die Einfuehrung neuer Qualitaetsprodukte von Unternehmen: Marktnischenbesetzung versus Kannibalisierung der Nachfrage) Diese Studie analysiert das optimale Angebot von Guetern, die sich in der Qualitaet untescheiden. Wir betrachten ein Modell, in dem zwei insaessige Unternehmen neue Produkte mit unterschiedlicher Qualitaet in den Markt einfuehren koennen. Zudem koennen die Innovatoren entscheiden, ob ihre existierenden Produkte weiterhin im Markt angeboten oder abgezogen werden sollen. Wir zeigen, dass strategische Effekte und Kannibalisierungseffekte keine Diskriminierung zwischen den Konsumenten zulassen. Der Innovator zieht das existierende Produkt immer aus dem Markt, um einen erhoehten Preiswettbewerb und eine Kannibilisierung der eigenen Nachfrage zu vermeiden. Im Gegensatz zu horizontal differenzierten Maerkten, stellen sich Unternehmen in vertikal differenzierten Maerkten besser, eine geringere Produktvielfalt anzubieten.
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Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number
SP II 2003-11.
References listed on IDEAS 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.:
Brander, James A & Eaton, Jonathan, 1984.
"Product Line Rivalry,"
American Economic Review,
American Economic Association, vol. 74(3), pages 323-34, June.
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