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Strategic Product Design under Duopoly

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  • Didier Laussel

Abstract

Two duopolists first decide in which proportions to incorporate in their product two different Lancasterian characteristics and then compete in quantities or prices. In the Cournot case, minimum differentiation obtains at equilibrium whatever the degree of substituability between the characteristics. In the Bertrand one, the equilibrium depends crucially on the degree of substituability/complementarity between the two characteristics. Maximal differential obtains if and only if the characteristics are strong enough substitutes. On the contrary as characteristics become closer and closer complements one obtains in the limit a minimal differentiation result.

Suggested Citation

  • Didier Laussel, 2018. "Strategic Product Design under Duopoly," Annals of Economics and Statistics, GENES, issue 131, pages 25-44.
  • Handle: RePEc:adr:anecst:y:2018:i:131:p:25-44
    DOI: 10.15609/annaeconstat2009.131.0025
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    References listed on IDEAS

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    1. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
    2. James A. Brander & Barbara J. Spencer, 2015. "Endogenous Horizontal Product Differentiation under Bertrand and Cournot Competition: Revisiting the Bertrand Paradox," NBER Working Papers 20966, National Bureau of Economic Research, Inc.
    3. Irmen, Andreas & Thisse, Jacques-Francois, 1998. "Competition in Multi-characteristics Spaces: Hotelling Was Almost Right," Journal of Economic Theory, Elsevier, vol. 78(1), pages 76-102, January.
    4. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132-132.
    5. Azucena Gracia & Jesús Barreiro-Hurlé & Belinda López- Galán, 2014. "Are Local and Organic Claims Complements or Substitutes? A Consumer Preferences Study for Eggs," Journal of Agricultural Economics, Wiley Blackwell, vol. 65(1), pages 49-67, January.
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    More about this item

    Keywords

    Horizontal Product Differentiation; Lancasterian Characteristics.;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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