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Vertical differentiation and collusion: Pruning or proliferation?

Author

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  • Gabszewicz, Jean J.
  • Marini, Marco A.
  • Tarola, Ornella

Abstract

In this paper, we tackle the dilemma of pruning versus proliferation in a vertically differentiated oligopoly under the assumption that some firms collude and control both the range of variants for sale and their corresponding prices, likewise a multiproduct firm. We analyse whether pruning emerges and, if so, a fighting brand is marketed. We find that it is always more profitable for colluding firms to adopt a pricing strategy such that some variants are withdrawn from the market. Under pruning, these firms commercialize a fighting brand only when facing competitors in a low-end market.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:reecon:v:71:y:2017:i:1:p:129-139
    DOI: 10.1016/j.rie.2016.10.003
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Marco A. Marini, 2018. "Collusive agreements in vertically differentiated markets," Chapters,in: Handbook of Game Theory and Industrial Organization, Volume II, chapter 3, pages 34-56 Edward Elgar Publishing.
    2. Gabszewicz, Jean J. & Marini, Marco A. & Tarola, Ornella, 2016. "Core existence in vertically differentiated markets," Economics Letters, Elsevier, vol. 149(C), pages 28-32.
    3. repec:bpj:bejtec:v:19:y:2019:i:1:p:22:n:3 is not listed on IDEAS
    4. Gabszewicz Jean J. & Marini Marco A. & Tarola Ornella, 2019. "Endogenous Mergers in Markets with Vertically Differentiated Products," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(1), pages 1-22, January.

    More about this item

    Keywords

    Vertically differentiated markets; Cannibalization; Market pruning; Price collusion;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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