IDEAS home Printed from https://ideas.repec.org/a/kap/jeczfn/v65y1997i1p79-102.html
   My bibliography  Save this article

Vertical product differentiation and entry deterrence

Author

Listed:
  • Stefan Lutz

Abstract

This paper studies how the existence of a potential entrant influences an incumbent’s choice of quality in a model of vertical product differentiation and entry. Both firms face fixed set-up costs and quality-dependent costs of production, and compete on quality and price. With identical quality-dependent costs, the incumbent will always deter entry if possible, i.e. if fixed costs are high. Quality will be set at a level lower than the optimal quality set if entry was accommodated. If entry is not blockaded, quality will be set at a level strictly lower than the optimal quality set under monopoly.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Stefan Lutz, 1997. "Vertical product differentiation and entry deterrence," Journal of Economics, Springer, vol. 65(1), pages 79-102, February.
  • Handle: RePEc:kap:jeczfn:v:65:y:1997:i:1:p:79-102
    DOI: 10.1007/BF01239060
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/BF01239060
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1007/BF01239060?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lutz, Stefan, 1996. "Vertical Product Differentiation, Quality Standards, and International Trade Policy," CEPR Discussion Papers 1443, C.E.P.R. Discussion Papers.
    2. Anglin, Paul M, 1992. "The Relationship between Models of Horizontal and Vertical Differentiation," Bulletin of Economic Research, Wiley Blackwell, vol. 44(1), pages 1-20, January.
    3. Crampes, Claude & Hollander, Abraham, 1995. "Duopoly and quality standards," European Economic Review, Elsevier, vol. 39(1), pages 71-82, January.
    4. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(1), pages 3-13.
    5. Weber, S., 1989. "On Hierarchical Spatial Competition," Papers 89-04, York (Canada) - Department of Economics.
    6. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    7. 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.
    8. Donnenfeld, Shabtai & Weber, Shlomo, 1992. "Vertical product differentiation with entry," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 449-472, September.
    9. Thomas R. Palfrey, 1984. "Spatial Equilibrium with Entry," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(1), pages 139-156.
    10. 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.
    11. Shlomo Weber, 1992. "On Hierarchical Spatial Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(2), pages 407-425.
    12. Hung, N. M. & Schmitt, Nicolas, 1988. "Quality competition and threat of entry in duopoly," Economics Letters, Elsevier, vol. 27(3), pages 287-292.
    13. repec:nys:sunysb:95-01 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yong-Hwan Noh & Giancarlo Moschini, 2006. "Vertical Product Differentiation, Entry-Deterrence Strategies, and Entry Qualities," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 29(3), pages 227-252, November.
    2. Lutz, Stefan H., 2002. "The Effects of Quotas on Vertical Intra-Industry Trade," ZEW Discussion Papers 02-61, ZEW - Leibniz Centre for European Economic Research.
    3. Peter-J. Jost, 2023. "Price commitment and the strategic launch of a fighter brand," Quantitative Marketing and Economics (QME), Springer, vol. 21(3), pages 381-435, September.
    4. Werner Smolny, 2003. "Determinants of innovation behaviour and investment estimates for west-german manufacturing firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 12(5), pages 449-463.
    5. Liang Lu, 2015. "Proliferation and Entry Deterrence in Vertically Differentiated Markets," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2015-06, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    6. Constantatos, Christos & Perrakis, Stylianos, 1995. "Différenciation verticale et structure du marché," L'Actualité Economique, Société Canadienne de Science Economique, vol. 71(1), pages 71-98, mars.
    7. Stefan Lutz & Mina Baliamoune-Lutz, 2003. "Mutual Recognition of National Minimum Quality Standards may Support International Convergence," Journal of Industry, Competition and Trade, Springer, vol. 3(4), pages 293-311, December.
    8. Fabian Herweg, 2012. "Relaxing competition through quality differentiation and price discrimination," Journal of Economics, Springer, vol. 106(1), pages 1-26, May.
    9. Buehler, Benno & Schuett, Florian, 2014. "Certification and minimum quality standards when some consumers are uninformed," European Economic Review, Elsevier, vol. 70(C), pages 493-511.
    10. Onur A. Koska, 2020. "Sourcing product quality for foreign market entry," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(3), pages 669-702, August.
    11. Stefan Lutz & Mario Pezzino, 2012. "International Strategic Choice of Minimum Quality Standards and Welfare," Journal of Common Market Studies, Wiley Blackwell, vol. 50(4), pages 594-613, July.
    12. Alventosa, Adriana & Pacheco Pires, Cesaltina & Ferreira Jorge, Sílvia & Pinho, Joana & Catalão-Lopes, Margarida, 2023. "How does firms’ cost structure affect their quality–price mix? An experimental analysis," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 107(C).
    13. Maria Rosa Battaggion & Serena Marianna Drufuca, 2020. "Quality competition and entry: a media market case," Journal of Economics, Springer, vol. 130(1), pages 1-36, June.
    14. Peter-J. Jost & Stefanie Schubert & Miriam Zschoche, 2015. "Incumbent positioning as a determinant of strategic response to entry," Small Business Economics, Springer, vol. 44(3), pages 577-596, March.
    15. José Luis Moraga Gonzales & Jean-Marie Viaene, 2001. "Procompetitive Trade Policies," CESifo Working Paper Series 597, CESifo.
    16. M. Alvisi, 2000. "Quality Choice, Fixed Costs and Equilibrium in Models of Vertical Differentiation ," Working Papers 437, Dipartimento Scienze Economiche, Universita' di Bologna.
    17. Pei‐Cheng Liao, 2008. "A Note On Market Coverage In Vertical Differentiation Models With Fixed Costs," Bulletin of Economic Research, Wiley Blackwell, vol. 60(1), pages 27-44, January.
    18. Herguera, Iñigo & Lutz, Stefan, 1997. "Trade policy and leapfrogging," UC3M Working papers. Economics 7214, Universidad Carlos III de Madrid. Departamento de Economía.
    19. Herweg, Fabian, 2007. "Can price discrimination lead to product differentiation? A vertical differentiation model," Bonn Econ Discussion Papers 2/2007, University of Bonn, Bonn Graduate School of Economics (BGSE).

    More about this item

    Keywords

    product differentiation; quality; oligopoly; entry; L12; L13; L15;
    All these keywords.

    JEL classification:

    • 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
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jeczfn:v:65:y:1997:i:1:p:79-102. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.