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Product differentiation in successive vertical oligopolies

  • BELLEFLAMME, Paul
  • TOULEMONDE, Eric

This is a successive oligopoly model with two brands. Each downstream firm chooses one brand to sell on a final market. The upstream firms specialize in the production of one input specifically designed for the production of one brand, but they also produce the input for the other brand at an extra cost. We show that when more downstream firms choose one brand, more upstream firms will specialize in the input specific to that brand, and vice versa. Hence, multiple equilibria are possible and the softening effect of brand differentiation on competition might not be strong enough to induce maximal differentiation. The existence of equilibria and their welfare performance are also examined.

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File URL: http://dx.doi.org/10.1111/1540-5982.t01-2-00001
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -1720.

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Handle: RePEc:cor:louvrp:-1720
Note: In : Canadian Journal of Economic/Revue canadienne d'Economique, 36(3), 523-545, 2003
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  1. Michael A. Einhorn, 1992. "Mix and Match Compatibility with Vertical Product Dimensions," RAND Journal of Economics, The RAND Corporation, vol. 23(4), pages 535-547, Winter.
  2. Matutes, Carmen & Regibeau, Pierre, 1989. "Standardization across Markets and Entry," Journal of Industrial Economics, Wiley Blackwell, vol. 37(4), pages 359-71, June.
  3. NORMAN, George & THISSE, Jacques-François, 1996. "Technology choice and market structure : strategic aspects of flexible manufacturing," CORE Discussion Papers 1996059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Julio J. Rotemberg & Garth Saloner, 1990. "Competition and Human Capital Accumulation: A Theory of Interregional Specialization and Trade," NBER Working Papers 3228, National Bureau of Economic Research, Inc.
  5. Economides, Nicholas, 1989. "Desirability of Compatibility in the Absence of Network Externalities," American Economic Review, American Economic Association, vol. 79(5), pages 1165-81, December.
  6. Church, Jeffrey & Gandal, Neil, 1992. "Network Effects, Software Provision, and Standardization," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 85-103, March.
  7. Anderson, Simon P & de Palma, André, 1996. "From Local to Global Competition," CEPR Discussion Papers 1328, C.E.P.R. Discussion Papers.
  8. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  9. Matutes, Carmen & Regibeau, Pierre, 1992. "Compatibility and Bundling of Complementary Goods in a Duopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 37-54, March.
  10. Curtis Eaton, B. & Schmitt, N., 1991. "Flexible Manufacturing and Market Structure," Papers 1991-02, Tasmania - Department of Economics.
  11. Alford, Dave & Sackett, Peter & Nelder, Geoff, 2000. "Mass customisation -- an automotive perspective," International Journal of Production Economics, Elsevier, vol. 65(1), pages 99-110, April.
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