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Bidimensional vertical differentiation

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  • Garella, Paolo G.
  • Lambertini, Luca

Abstract

In markets where product quality is important, more than one characteristic is usually necessary for producers to define product quality. Standard theory maintains that: (i) in a duopoly there will be a quality leader no matter whether the product can incorporate one or two vertical attributes; (ii) differentiation pertains only to one attribute. By contrast, in our set-up, there are also equilibria where the quality leader is better in two attributes, and others where there is cross leadership, namely a situation where each firm designs a product to dominate the other in one characteristic. Applications to Minimum Quality Standards and tax (subsidy) on quality products are sketched, showing spill-over effects from one to the other quality dimension.

Suggested Citation

  • Garella, Paolo G. & Lambertini, Luca, 2014. "Bidimensional vertical differentiation," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 1-10.
  • Handle: RePEc:eee:indorg:v:32:y:2014:i:c:p:1-10
    DOI: 10.1016/j.ijindorg.2013.10.007
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    References listed on IDEAS

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    Cited by:

    1. repec:kap:enreec:v:69:y:2018:i:4:d:10.1007_s10640-016-0097-0 is not listed on IDEAS
    2. repec:kap:regeco:v:53:y:2018:i:2:d:10.1007_s11149-017-9347-5 is not listed on IDEAS
    3. Barigozzi, Francesca & Ma, Ching-to Albert, 2018. "Product differentiation with multiple qualities," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 380-412.
    4. repec:taf:ecinnt:v:26:y:2017:i:7:p:575-595 is not listed on IDEAS

    More about this item

    Keywords

    Oligopoly equilibrium; Vertical differentiation; Product quality; Scope economies; Minimum Quality Standards; Taxation;

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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