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The properties of product line prices

Author

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  • Johnson, Justin P.
  • Myatt, David P.

Abstract

We study multi-product Cournot suppliers (a monopoly is a special case) who offer menus of differentiated qualities. Under conditions that include linear and constant-elasticity demand specifications, the equilibrium price for each quality is equal to its price in a single-product Cournot market. A corollary is this: a monopolist who naively ignores the substitutability of her products, by choosing the standalone monopoly price for each quality, successfully implements the optimal discriminatory scheme. Under other reasonable specifications, the equilibrium prices are close to the single-product prices. We also evaluate the impact of minimum quality standards.

Suggested Citation

  • Johnson, Justin P. & Myatt, David P., 2015. "The properties of product line prices," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 182-188.
  • Handle: RePEc:eee:indorg:v:43:y:2015:i:c:p:182-188
    DOI: 10.1016/j.ijindorg.2015.05.006
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    References listed on IDEAS

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    1. Justin P. Johnson & David P. Myatt, 2003. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," American Economic Review, American Economic Association, vol. 93(3), pages 748-774, June.
    2. Simon Cowan, 2007. "The welfare effects of third-degree price discrimination with nonlinear demand functions," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 419-428, June.
    3. Justin P. Johnson & David P. Myatt, 2006. "Multiproduct Cournot oligopoly," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 583-601, September.
    4. E. Glen Weyl & Michal Fabinger, 2013. "Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 528-583.
    5. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    6. Simon Cowan, 2012. "Third-Degree Price Discrimination and Consumer Surplus," Journal of Industrial Economics, Wiley Blackwell, vol. 60(2), pages 333-345, June.
    7. Justin P. Johnson & David P. Myatt, 2006. "On the Simple Economics of Advertising, Marketing, and Product Design," American Economic Review, American Economic Association, vol. 96(3), pages 756-784, June.
    8. Iñaki Aguirre & Simon Cowan & John Vickers, 2010. "Monopoly Price Discrimination and Demand Curvature," American Economic Review, American Economic Association, vol. 100(4), pages 1601-1615, September.
    9. Anderson, Simon P. & Celik, Levent, 2015. "Product line design," Journal of Economic Theory, Elsevier, vol. 157(C), pages 517-526.
    10. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
    11. Itoh, Motoshige, 1983. "Monopoly, product differentiation and economic welfare," Journal of Economic Theory, Elsevier, vol. 31(1), pages 88-104, October.
    12. Eric T. Anderson & James D. Dana, Jr., 2009. "When Is Price Discrimination Profitable?," Management Science, INFORMS, vol. 55(6), pages 980-989, June.
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    Citations

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    Cited by:

    1. Fabra, Natalia & Montero, Juan Pablo, 2017. "Product Choice and Price Discrimination in Markets with Search Costs," CEPR Discussion Papers 12046, C.E.P.R. Discussion Papers.
    2. Mark Armstrong & John Vickers, 2018. "Multiproduct Pricing Made Simple," Journal of Political Economy, University of Chicago Press, vol. 126(4), pages 1444-1471.
    3. Justin P. Johnson & David P. Myatt, 2018. "The determinants of product lines," RAND Journal of Economics, RAND Corporation, vol. 49(3), pages 541-573, September.
    4. Creane, Anthony, 2019. "Shipping the good apples under strategic competition," MPRA Paper 93744, University Library of Munich, Germany.
    5. Mark Armstrong, 2016. "Nonlinear Pricing," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 583-614, October.
    6. Bos, Iwan & Peeters, Ronald, 2019. "Price Competition in a Vertizontally Differentiated Duopoly," Research Memorandum 017, Maastricht University, Graduate School of Business and Economics (GSBE).
    7. Mark Armstrong & John Vickers, 2015. "Multiproduct Monopoly Made Simple," Economics Series Working Papers 754, University of Oxford, Department of Economics.
    8. Anderson, Simon P. & Celik, Levent, 2015. "Product line design," Journal of Economic Theory, Elsevier, vol. 157(C), pages 517-526.

    More about this item

    Keywords

    Product lines; Price discrimination; Multi-product competition;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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