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Multiproduct firm behaviour in a differentiated market

Author

Listed:
  • Eric Giraud-Héraud
  • Hakim Hammoudi
  • Mahdi Mokrane

Abstract

In this paper we offer a generalization of the circular model of product differentiation by introducing a multiproduct firm facing monoproduct competitors. We prove existence and explicitly characterize equilibrium when transportation costs are quadratic. We exhibit interesting equilibrium features for price policy, market shares, and profits. In equilibrium, the multiproduct firm uses its connected market shares to build asymmetric pricing schemes that allow a fraction of its product line (brands, stores or firms) to be shielded from outside competition and hence extracts maximum consumer surplus. Our results shed some light on the link between product differentiation and mergers and acquisitions activity (M&As).

Suggested Citation

  • Eric Giraud-Héraud & Hakim Hammoudi & Mahdi Mokrane, 2003. "Multiproduct firm behaviour in a differentiated market," Canadian Journal of Economics, Canadian Economics Association, vol. 36(1), pages 41-61, February.
  • Handle: RePEc:cje:issued:v:36:y:2003:i:1:p:41-61
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    Citations

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    Cited by:

    1. Jaskold Gabszewicz, Jean & Marini, Marco A. & Tarola, Ornella, 2017. "Endogenous Mergers in Markets with Vertically Differentiated Products," MPRA Paper 80528, University Library of Munich, Germany.
    2. Gabszewicz, Jean J. & Marini, Marco A. & Tarola, Ornella, 2017. "Vertical differentiation and collusion: Pruning or proliferation?," Research in Economics, Elsevier, vol. 71(1), pages 129-139.
    3. Matthias Firgo & Agnes Kügler, 2014. "Ski Networks and their Effects on Pricing in Austrian Skiing Regions," WIFO Monatsberichte (monthly reports), WIFO, vol. 87(12), pages 851-862, December.
    4. Brandão, António & Correia-da-Silva, João & Pinho, Joana, 2014. "Spatial competition between shopping centers," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 234-250.
    5. repec:eee:regeco:v:64:y:2017:i:c:p:117-136 is not listed on IDEAS
    6. Jean J. Gabszewicz & Marco A. Marini & Ornella Tarola, 2015. "Alliance Formation in a Vertically Differentiated Market," DIAG Technical Reports 2015-06, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    7. Alexei Alexandrov, 2008. "Interconnecting Differentiated Networks," Working Papers 08-07, NET Institute, revised Oct 2008.
    8. Pennerstorfer, Dieter & Weiss, Christoph, 2013. "Spatial clustering and market power: Evidence from the retail gasoline market," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 661-675.
    9. Firgo, Matthias & Kügler, Agnes, 2014. "Detecting Collusion in Spatially Differentiated Markets," Department of Economics Working Paper Series 4347, WU Vienna University of Economics and Business.
    10. Jean Gabszewicz, Jean & Marini, Marco A. & Tarola, Ornella, 2016. "Vertical differentiation and collusion: pruning or proliferation?," MPRA Paper 74599, University Library of Munich, Germany, revised 15 Oct 2016.
    11. Tobias Wenzel, 2011. "Deregulation of Shopping Hours: The Impact on Independent Retailers and Chain Stores," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(1), pages 145-166, March.
    12. Dieter Pennerstorfer, 2014. "Price and Quality Competition in Spatial Markets. The Case of Camping Sites," WIFO Working Papers 466, WIFO.
    13. Marini, Marco A., 2016. "Collusive Agreements in Vertically Differentiated Markets," MPRA Paper 75369, University Library of Munich, Germany.
    14. Jacques Laye & Hervé Tanguy, 2004. "Are neighbors welcome ? e-buyer search, price competition and coalition strategy in the Internet retailing," Working Papers hal-00242928, HAL.
    15. Gabszewicz, Jean J. & Marini, Marco A. & Tarola, Ornella, 2015. "Endogenous Mergers in Vertically Differentiated Markets," MPRA Paper 68318, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • 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

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