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The option of joint purchase in vertically differentiated markets

Author

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  • Jean J. Gabszewicz
  • Xavier Y. Wauthy

Abstract

Within the framework proposed by Mussa and Rosen (1978) for modelling quality differentiation, we allow consumers to buy simultaneously different variants of the same indivisible good. We call this the "joint purchase option". We show that this option dramatically affects price competition: while a unique equilibrium always prevails when consumers are assumed to make mutually exclusive purchases, either uniqueness, or multiplicity, or absence of price equilibrium arise when the joint purchase option is opened depending on the utility attached to joint purchase relative to separate purchases.
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Suggested Citation

  • Jean J. Gabszewicz & Xavier Y. Wauthy, 2003. "The option of joint purchase in vertically differentiated markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 22(4), pages 817-829, November.
  • Handle: RePEc:spr:joecth:v:22:y:2003:i:4:p:817-829
    DOI: 10.1007/s00199-003-0359-2
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    File URL: http://hdl.handle.net/10.1007/s00199-003-0359-2
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    References listed on IDEAS

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    1. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    2. GABSZEWICZ, Jean & WAUTHY, Xavier, 2000. "Another perverse effect of monopoly power," CORE Discussion Papers 2000062, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Gabszewicz, Jean & Sonnac, Nathalie & Wauthy, Xavier, 2001. "On price competition with complementary goods," Economics Letters, Elsevier, vol. 70(3), pages 431-437, March.
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    Citations

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    Cited by:

    1. Anderson, Simon P. & Foros, Øystein & Kind, Hans Jarle, 2012. "Product quality, competition, and multi-purchasing," Discussion Papers 2012/9, Norwegian School of Economics, Department of Business and Management Science.
    2. Hélène Latzer & Florian Mayneris, 2011. "Trade in quality and income distribution: an analysis of the enlarged EU market," Working Papers of BETA 2011-21, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    3. Joan Calzada & Tommaso M. Valletti, 2012. "Intertemporal Movie Distribution: Versioning When Customers Can Buy Both Versions," Marketing Science, INFORMS, vol. 31(4), pages 649-667, July.
    4. Anderson, Simon P. & Foros, Øystein & Kind, Hans Jarle & Peitz, Martin, 2012. "Media market concentration, advertising levels, and ad prices," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 321-325.
    5. Francisco Martínez Sánchez, 2016. "Versioning Goods and Joint Purchase: Substitution and Complementarity Strategies," Prague Economic Papers, University of Economics, Prague, vol. 2016(5), pages 577-590.
    6. Anderson, Simon P & Foros, Øystein & Kind, Hans Jarle, 2015. "Competition for advertisers and for viewers in media markets," CEPR Discussion Papers 10608, C.E.P.R. Discussion Papers.
    7. repec:cuf:journl:y:2018:v:19:i:1:dou:ye is not listed on IDEAS
    8. Minniti, Antonio & Vergari, Cecilia, 2010. "Turning Piracy into Profits: a Theoretical Investigation," Information Economics and Policy, Elsevier, vol. 22(4), pages 379-390, December.
    9. Leonard K. Cheng & Jae Nahm, 2007. "Product boundary, vertical competition, and the double mark-upproblem," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 447-466, June.
    10. GABSZEWICZ, Jean & WAUTHY, Xavier, 2004. "Two-sided markets and price competition with multi-homing," CORE Discussion Papers 2004030, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

    More about this item

    Keywords

    Keywords and Phrases: Joint purchase; Price; Vertical differentiation.; JEL Classification Numbers: L13.;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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