Product Diversity in Asymmetric Oligopoly:Is the Quality of Consumer Goods Too Low?
We analyse an oligopoly model incorporating horizontal differentiation and quality differences. High quality goods are overpriced and underproduced. When the market is fairly well covered, low quality products may be profitable when their net social contribution is negative, implying excessive entry. In a relatively uncovered market, even low quality goods are underproduced and there may be underentry. When fixed costs are independent of quality, the market tends to select the right firms. Otherwise, the market may produce low quality products when it should produce high quality ones. The model is calibrated using market data for yogurt. Copyright 2001 by Blackwell Publishing Ltd
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- ANDERSON, Simon P. & DE PALMA, André & NESTEROV, Yurii, 1994.
"Oligopolistic Competition and the Optimal Provision of Products,"
CORE Discussion Papers
1994034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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- Anderson, S. P. & De Palma, A. & Nesterov, Y., . "Oligopolistic competition and the optimal provision of products," CORE Discussion Papers RP 1179, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Raymond Deneckere & Michael Rothschild, 1986. "Monopolistic Competition and Preference Diversity," Discussion Papers 684, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 217-235.
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