IDEAS home Printed from
   My bibliography  Save this article

Multiproduct Duopoly with Vertical Differentiation


  • Cheng Yi-Ling

    () (Tunghai University and Academia Sinica)

  • Peng Shin-Kun

    () (Academia Sinica and National Taiwan University)

  • Tabuchi Takatoshi

    () (University of Tokyo)


This paper investigates a two-stage competition in a vertically differentiated industry, where each firm produces an arbitrary number of similar qualities and sells them to heterogeneous consumers. The number of products, qualities, prices, and the extent of the market coverage are endogenously determined. We show that when unit costs of quality improvement are increasing and quadratic, each firm has an incentive to provide a disconnected set of similar qualities approximating a continuum. The finding contrasts sharply with the single-quality outcome when the market coverage is exogenously determined. We also show that allowing for multiple qualities intensifies the level of competition, lowers the profit of each firm, and raises the consumer surplus and the social welfare in comparison to the single-quality duopoly.

Suggested Citation

  • Cheng Yi-Ling & Peng Shin-Kun & Tabuchi Takatoshi, 2011. "Multiproduct Duopoly with Vertical Differentiation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-29, August.
  • Handle: RePEc:bpj:bejtec:v:11:y:2011:i:1:n:16

    Download full text from publisher

    File URL:
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, July.
    2. Gilbert, Richard J & Matutes, Carmen, 1993. "Product Line Rivalry with Brand Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 41(3), pages 223-240, September.
    3. Wauthy, Xavier, 1996. "Quality Choice in Models of Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 345-353, September.
    4. Bonnisseau Jean-Marc & Lahmandi-Ayed Rim, 2006. "Vertical Differentiation: Multiproduct Strategy to Face Entry?," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-14, November.
    5. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
    6. K. Sridhar Moorthy, 1988. "Product and Price Competition in a Duopoly," Marketing Science, INFORMS, vol. 7(2), pages 141-168.
    7. Gayer Amit, 2007. "Oligopoly, Endogenous Monopolist and Product Quality," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-21, August.
    8. Choi, Chong Ju & Shin, Hyun Song, 1992. "A Comment on a Model of Vertical Product Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 229-231, June.
    9. K. Sridhar Moorthy, 1984. "Market Segmentation, Self-Selection, and Product Line Design," Marketing Science, INFORMS, vol. 3(4), pages 288-307.
    10. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Evdokia Dritsa & Eleftherios Zacharias, 2012. "Price Competition in a Duopoly Characterized by Positional Effects," Working Papers 12-21, NET Institute.
    2. Yi-Ling Cheng & Shin-Kun Peng, 2014. "Price competition and quality differentiation with multiproduct firms," Journal of Economics, Springer, vol. 112(3), pages 207-223, July.
    3. Sun, Shaoyan & An, Henry, 2013. "Reputation and Multiproduct-firm Behavior: Product Line and Price Rivalry Among Retailers," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 151146, Agricultural and Applied Economics Association.
    4. Müller, Stephan & Götz, Georg, 2014. "Quality competition and entry deterrence: When to launch an extra brand," Center for European, Governance and Economic Development Research Discussion Papers 223, University of Goettingen, Department of Economics.

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • 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


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejtec:v:11:y:2011:i:1:n:16. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.