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Are Markets More Competitive if Commodities Are Closer Substitutes?

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  • Schulz, Norbert

Abstract

Equilibrium prices of the variants of a differentiated commodity are shown to increase, if the variants become closer substitutes, under a set of circumstances which is by no means pathological. Rather, the underlying argument has a bearing on market prices, whenever a potential buyer does not know with certainty the characteristics of the variants which are for sale before inspecting them and, therefore, has to incur some information costs before the final purchase decision. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Schulz, Norbert, 1995. "Are Markets More Competitive if Commodities Are Closer Substitutes?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 963-983, November.
    • Handle: RePEc:ier:iecrev:v:36:y:1995:i:4:p:963-83
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    Cited by:

    1. Soete, Luc & Verspagen, Bart & ter Weel, Bas, 2010. "Systems of Innovation," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 2, chapter 0, pages 1159-1180, Elsevier.
    2. Machiel Mulder & Victoria Shestalova & Gijsbert Zwart, 2006. "Liberalisation of European energy markets: challenges and policy options," CPB Document 138.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Inderst, Roman, 2002. "Why competition may drive up prices," Journal of Economic Behavior & Organization, Elsevier, vol. 47(4), pages 451-462, April.

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