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Price Competition When Consumers Are Uncertain about Which Firm Sells Which Quality


  • Gabszewicz, Jean J
  • Grilo, Isabel


In this paper we analyze the properties of price equilibria in a duopoly market where firms sell vertically differentiated products, consumers being uncertain about which firm sells which quality. Both existence and properties of price equilibria are characterized by the beliefs of the consumers' population about the distribution of quality between firms. Copyright 1992 by MIT Press.

Suggested Citation

  • Gabszewicz, Jean J & Grilo, Isabel, 1992. "Price Competition When Consumers Are Uncertain about Which Firm Sells Which Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 629-650, Winter.
  • Handle: RePEc:bla:jemstr:v:1:y:1992:i:4:p:629-50

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    References listed on IDEAS

    1. Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 73(4), pages 741-748, September.
    2. Dutta, P.K. & Rustichini, A. & Lach, S., 1991. "Innovation and Product Differentiation," RCER Working Papers 262, University of Rochester - Center for Economic Research (RCER).
    3. Jennifer F. Reinganum, 1981. "On the Diffusion of New Technology: A Game Theoretic Approach," Review of Economic Studies, Oxford University Press, vol. 48(3), pages 395-405.
    4. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders and Product Cycles," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 557-586.
    5. Dutta, Prajit K & Rustichini, Aldo, 1993. "A Theory of Stopping Time Games with Applications to Product Innovations and Asset Sales," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(4), pages 743-763, October.
    6. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, January.
    7. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    8. Curtis Eaton, B. & Lipsey, Richard G., 1989. "Product differentiation," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 12, pages 723-768 Elsevier.
    9. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders in the Theory of Growth," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 43-61.
    10. Katz, Michael L & Shapiro, Carl, 1987. "R&D Rivalry with Licensing or Imitation," American Economic Review, American Economic Association, vol. 77(3), pages 402-420, June.
    11. Drew Fudenberg & Jean Tirole, 1985. "Preemption and Rent Equalization in the Adoption of New Technology," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 383-401.
    12. Prajit K. Dutta, 1990. "Innovation and Product Differentiation," Discussion Papers 894, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    13. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters,in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
    14. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
    15. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, vol. 80(5), pages 1077-1091, December.
    16. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-526, June.
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    Cited by:

    1. Paulson Gjerde, Kathy A. & Slotnick, Susan A., 2004. "Quality and reputation: The effects of external and internal factors over time," International Journal of Production Economics, Elsevier, vol. 89(1), pages 1-20, May.
    2. Alberto Cavaliere & Giovanni Crea, 2017. "Vertical Differentiation With Optimistic Misperceptions And Information Disparities," DEM Working Papers Series 137, University of Pavia, Department of Economics and Management.
    3. Olivier Bonroy & Christos Constantatos, 2008. "On the use of labels in credence goods markets," Journal of Regulatory Economics, Springer, vol. 33(3), pages 237-252, June.
    4. Moscarini, Giuseppe & Ottaviani, Marco, 2001. "Price Competition for an Informed Buyer," Journal of Economic Theory, Elsevier, vol. 101(2), pages 457-493, December.
    5. Olivier Bonroy & Christos Constantatos, 2015. "On the Economics of Labels: How Their Introduction Affects the Functioning of Markets and the Welfare of All Participants," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(1), pages 239-259.
    6. Yukiko Hirao, 2017. "Firms’ Information Acquisition with Heterogeneous Consumers and Trend," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(3), pages 323-344, May.
    7. John Crespi & Stéphan Marette, 2003. "“Does Contain” vs. “Does Not Contain”: Does it Matter which GMO Label is Used?," European Journal of Law and Economics, Springer, vol. 16(3), pages 327-344, November.
    8. Cheng, Yi-Ling, 2014. "Vertical product differentiation under demand uncertainty," Economic Modelling, Elsevier, vol. 36(C), pages 51-57.
    9. Gabszewicz, Jean J. & Resende, Joana, 2012. "Differentiated credence goods and price competition," Information Economics and Policy, Elsevier, vol. 24(3), pages 277-287.
    10. repec:gbl:wpaper:2013-01 is not listed on IDEAS
    11. Bonroy, Olivier & Constantatos, Christos, 2003. "Consumer Uncertainty about which Firm Sells the High Quality: on the Slow Penetration of Some Credence Goods," Cahiers de recherche 0307, GREEN.
    12. Alberto Cavaliere & Giovanni Crea, 2016. "Vertical Differentiation With Consumers Misperceptions And Information Disparities," DEM Working Papers Series 122, University of Pavia, Department of Economics and Management.
    13. Galasso, Alberto, 2004. "Subjective price search and public intervention," Research in Economics, Elsevier, vol. 58(2), pages 159-173, June.
    14. Gerhard Orosel & Klaus G. Zauner, 2004. "Vertical Product Differentiation When Quality is Unobservable to Buyers," CESifo Working Paper Series 1271, CESifo Group Munich.

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