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Multi-product Bertrand Oligopoly with Exogenous and Endogenous Consumer Heterogeneity

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  • Bernhardt Dan
  • Graham Brett

    (Wang Yanan Institute for Studies in Economics, Xiamen University, 422 Siming South Road, Siming, Xiamen, Fujian Province, 361006 China)

Abstract

We develop a spatial model in which consumers receive firm-specific location shocks and firms endogenously determine both franchise/product locations and prices. Remarkably, firms fail to profit from endogenous product-specific heterogeneity alone: while ex-post consumer heterogeneity ensures positive gross profits, competition for market share results in socially excessive product lines and zero net profits. With added exogenous taste heterogeneity, endogenous spatial heterogeneity drives profits below their levels with only taste heterogeneity. Finally, we introduce multiple product lines and show that when product costs differ across lines, firms earn positive profits as long as consumer preferences over lines are imperfectly correlated.

Suggested Citation

  • Bernhardt Dan & Graham Brett, 2015. "Multi-product Bertrand Oligopoly with Exogenous and Endogenous Consumer Heterogeneity," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 15(2), pages 167-209, July.
    • Handle: RePEc:bpj:bejtec:v:15:y:2015:i:2:p:167-209:n:9
    DOI: 10.1515/bejte-2014-0031
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    References listed on IDEAS

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      • Alexei Alexandrov, 2006. "Fat Products," Discussion Papers 1435, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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