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Are Markets More Competitive if Commodities are Closer Substitutes?

Author

Listed:
  • Schulz, Norbert

Abstract

Equilibrium prices of the variants of a differentiated commodity are shown to increase if the variants become closer substitutes, under a set of circumstances, which is by no means pathological. Rather, the underlying argument has a bearing on market prices, whenever a potential buyer does not know with certainty the characteristics of the variants for sale before inspecting them, and therefore must incur some information costs before the final purchase decision.

Suggested Citation

  • Schulz, Norbert, 1995. "Are Markets More Competitive if Commodities are Closer Substitutes?," CEPR Discussion Papers 1268, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1268
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    Citations

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    Cited by:

    1. Soete, Luc & Verspagen, Bart & ter Weel, Bas, 2010. "Systems of Innovation," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 2, chapter 0, pages 1159-1180, Elsevier.
    2. Machiel Mulder & Victoria Shestalova & Gijsbert Zwart, 2006. "Liberalisation of European energy markets: challenges and policy options," CPB Document 138.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Inderst, Roman, 2002. "Why competition may drive up prices," Journal of Economic Behavior & Organization, Elsevier, vol. 47(4), pages 451-462, April.

    More about this item

    Keywords

    Oligopoly; Product Differentiation; Search Goods; Substitutability;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • R34 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Input Demand Analysis

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