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Product lines and price discrimination in the European car market

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  • GINSBURGH , Victor
  • WEBER, Shlomo

Abstract

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 the 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 producers seem indeed to use product lines to discriminate across EU countries.
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Suggested Citation

  • GINSBURGH , Victor & WEBER, Shlomo, 2002. "Product lines and price discrimination in the European car market," LIDAM Reprints CORE 1547, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:1547
    DOI: 10.1111/1467-9957.00286
    Note: In : The Manchester School, 70(1), 101-114, 2002
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    References listed on IDEAS

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    1. 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.
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    3. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    4. Victor Ginsburgh & Geneviève Vanhamme, 1989. "Price Differences in the EC Car Market. Some Further Results," Annals of Economics and Statistics, GENES, issue 15-16, pages 137-149.
    5. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    6. repec:adr:anecst:y:1989:i:15-16:p:06 is not listed on IDEAS
    7. Steven Berry & James Levinsohn & Ariel Pakes, 2004. "Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Car Market," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 68-105, February.
    8. 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.
    9. 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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    11. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(1), pages 3-13.
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    Cited by:

    1. Sílvia Jorge & Cesaltina Pires, 2004. "Delivered versus Mill Nonlinear Pricing in Free Entry Markets," Working Papers de Economia (Economics Working Papers) 22, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
    2. Dvir, Eyal & Strasser, Georg, 2018. "Does marketing widen borders? Cross-country price dispersion in the European car market," Journal of International Economics, Elsevier, vol. 112(C), pages 134-149.
    3. José A. Novo‐Peteiro, 2023. "Product design with attribute dependence," Manchester School, University of Manchester, vol. 91(4), pages 361-385, July.
    4. Gianpaolo Rossini & Paolo Zanghieri, 2008. "What Drives Price Differentials of Consumables in Europe? Size? Affluence? Or Both?," Open Economies Review, Springer, vol. 19(1), pages 121-134, February.

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