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Product Lines and Price Discrimination in the European Car Market

  • GINSBURGH, Victor

    (CEME, Université Libre de Bruxelles and CORE, Université catholique de Louvain)

  • WEBER, Shlomo

    (Southern Methodist University, Dallas)

In this paper we consider a model of oligopolistic competition where firms make a two-dimensional product line decision. They choose a location in style space, thus, inducing horizontal differentiation, and produce different qualities (a product line) of a given good (vertical differentiation), consumed by a population of customers who differ in their income and preference for style. We prove existence of a non-cooperative equilibrium and show that, as the degree of competition increases, prices approach marginal cost. The approach is used to show that European car producer seem indeed to use product lines to discriminate across EC countries.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1996007.

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Date of creation: 01 Mar 1996
Date of revision:
Handle: RePEc:cor:louvco:1996007
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  1. Steven Berry & James Levinsohn & Ariel Pakes, 1998. "Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Car Market," NBER Working Papers 6481, National Bureau of Economic Research, Inc.
  2. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  3. Horstmann, Ignatius & Slivinski, Alan, 1985. "Location models as models of product choice," Journal of Economic Theory, Elsevier, vol. 36(2), pages 367-386, August.
  4. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  5. James Brander & Jonathan Eaton, 1982. "Product Line Rivalry," Working Papers 519, Queen's University, Department of Economics.
  6. Victor Ginsburgh & Geneviève Vanhamme, 1989. "Price differences in the EC car market: some further results," ULB Institutional Repository 2013/1737, ULB -- Universite Libre de Bruxelles.
  7. Victor Ginsburgh & Yves Mertens, 1985. "Product differentiation and discrimination in the European Community: the case of automobiles," ULB Institutional Repository 2013/1755, ULB -- Universite Libre de Bruxelles.
  8. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  9. Mertens, Yves & Ginsburgh, Victor, 1985. "Product Differentiation and Price Discrimination in the European Community: The Case of Automobiles," Journal of Industrial Economics, Wiley Blackwell, vol. 34(2), pages 151-66, December.
  10. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
  11. Novshek, William, 1980. "Equilibrium in simple spatial (or differentiated product) models," Journal of Economic Theory, Elsevier, vol. 22(2), pages 313-326, April.
  12. Gilbert, Richard J. & Matutes, Carmen, 1989. "Product Line Rivalry with Brand Differentiation," Department of Economics, Working Paper Series qt1nr3k6nk, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  13. Frank Verboven, 1996. "International Price Discrimination in the European Car Market," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 240-268, Summer.
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