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Oligopoly, Endogenous Monopolist and Product Quality


  • Gayer Amit

    () (Haifa University)


This paper investigates an oligopolistic market with vertical product differentiation, where qualities are represented by a uni-dimensional interval. We examine the Nash equilibrium in the oligopoly game with a finite number of consumers, where each firm uses its technology and can offer a range of quality-price pairs, and firms' profits are determined by the consumers' selection choice. We show that under the standard conditions on consumers' preferences at most one firm with a positive profit can be active in equilibrium. In contrast, we present an example of a duopoly game with a continuum of consumers, in which both firms yield positive profits in an equilibrium. Finally, we analyze in the linear case the question of existence.

Suggested Citation

  • 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.
  • Handle: RePEc:bpj:bejtec:v:7:y:2007:i:1:n:31

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    References listed on IDEAS

    1. Kihlstrom, Richard E & Riordan, Michael H, 1984. "Advertising as a Signal," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 427-450, June.
    2. Albrecht, James & Lang, Harald & Vroman, Susan, 2002. "The effect of information on the well-being of the uninformed: what's the chance of getting a decent meal in an unfamiliar city?," International Journal of Industrial Organization, Elsevier, vol. 20(2), pages 139-162, February.
    3. Kwoka, John E, Jr, 1984. "Advertising and the Price and Quality of Optometric Services," American Economic Review, American Economic Association, vol. 74(1), pages 211-216, March.
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    5. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-239, March.
    6. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-754, July/Aug..
    7. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-170, Summer.
    8. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    9. Anderson, Lisa R & Holt, Charles A, 1997. "Information Cascades in the Laboratory," American Economic Review, American Economic Association, vol. 87(5), pages 847-862, December.
    10. Yuk-Shee Chan & Hayne Leland, 1982. "Prices and Qualities in Markets with Costly Information," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 499-516.
    11. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-641, August.
    12. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
    13. Bagwell, Kyle, 2007. "The Economic Analysis of Advertising," Handbook of Industrial Organization, Elsevier.
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    Cited by:

    1. 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.
    2. repec:eee:ecolet:v:159:y:2017:i:c:p:1-3 is not listed on IDEAS

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