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Vertical differentiation and labor market: the differentiation principle revisited

Author

Listed:
  • Amal Hili

    () (ISG-Sousse, Unité MASE-ESSAI and EPEE-Evry)

  • Rim Lahmandi-Ayed

    () (ESSAI-Université de Carthage and Unité MASE-ESSAI)

  • Hejer Lasram

    () (IHEC-Université de Carthage, Unité MASE-ESSAI, Aix-Marseille University (AMSE) CNRS & EHESS)

Abstract

The labor market is introduced into the standard vertical differentiation model, linking increasingly the quality of the product and the effort necessary for workers to produce it. Surprisingly, when two firms compete on the product market but are monopolies on the labor market, at equilibrium they choose not to differentiate their products, which is different from the result obtained with standard vertical differentiation models.

Suggested Citation

  • Amal Hili & Rim Lahmandi-Ayed & Hejer Lasram, 2015. "Vertical differentiation and labor market: the differentiation principle revisited," Economics Bulletin, AccessEcon, vol. 35(1), pages 633-640.
  • Handle: RePEc:ebl:ecbull:eb-14-00749
    as

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    References listed on IDEAS

    as
    1. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
    2. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
    3. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    4. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    5. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    6. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Vertical differentiation; competition; product market; labor market.;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • J4 - Labor and Demographic Economics - - Particular Labor Markets

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