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Monopoly and Product Diversity: The Role of Retailer Countervailing Power

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Abstract

We analyse a monopolist’s choice of product diversity and the effects of retailer countervailing power on that choice. We show that monopoly causes distortion in product diversity even after we take into consideration the effects of monopoly pricing. Specifically, the number of differentiated goods produced by the monopolist is smaller than that of the constrained social optimum. Retailer countervailing power lowers consumer prices but reduces product diversity. Consequently, it alleviates the distortion in prices but exacerbates the distortion in product diversity. In our model the former is outweighed by the latter and countervailing power makes consumers worse off. Therefore, price changes do not tell the whole story about how consumers are affected by countervailing power.

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  • Zhiqi Chen, 2004. "Monopoly and Product Diversity: The Role of Retailer Countervailing Power," Carleton Economic Papers 04-19, Carleton University, Department of Economics.
  • Handle: RePEc:car:carecp:04-19
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    Cited by:

    1. Claire Chambolle & Sofia Villas-Boas, 2007. "Buyer Power through Producer's Differentiation," Working Papers hal-00243058, HAL.
    2. Battigalli, Pierpaolo & Fumagalli, Chiara & Polo, Michele, 2007. "Buyer power and quality improvements," Research in Economics, Elsevier, vol. 61(2), pages 45-61, June.
    3. Vanessa von Schlippenbach & Isabel Teichmann, 2012. "The Strategic Use of Private Quality Standards in Food Supply Chains," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(5), pages 1189-1201.
    4. Pio Baake & Vanessa Schlippenbach, 2011. "Quality distortions in vertical relations," Journal of Economics, Springer, vol. 103(2), pages 149-169, June.
    5. Karantininis, Kostas & Sauer, Johannes & Furtan, William Hartley, 2010. "Innovation and integration in the agri-food industry," Food Policy, Elsevier, vol. 35(2), pages 112-120, April.

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