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Nonlinear Pricing and Multimarket Duopolists

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  • Silvia Sonderegger

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Abstract

This paper studies competition in price-quality menus within the context of a horizontally differentiated duopoly, where each firm also operates in a local, monopolistic market. It is assumed that the consumer's unobservable valuation for quality is determined by the nature of his preferences over brand product characteristics. I show that if competition between the two firms is sufficiently fierce, the equilibrium contract features overprovision of quality for sufficiently low types. Thus, with respect to the monopoly setting, competition may introduce new types of distortions, namely upward distortions. This suggests that the relationship between 'toughness of competition' and welfare may not necessarily be monotonic.

Suggested Citation

  • Silvia Sonderegger, 2004. "Nonlinear Pricing and Multimarket Duopolists," The Centre for Market and Public Organisation 04/110, Department of Economics, University of Bristol, UK.
  • Handle: RePEc:bri:cmpowp:04/110
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    File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp110.pdf
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    References listed on IDEAS

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    1. Robert C. Feenstra & James A. Levinsohn, 1995. "Estimating Markups and Market Conduct with Multidimensional Product Attributes," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 19-52.
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    More about this item

    Keywords

    oligopoly; other forms of market imperfection;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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