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Product Differentiation and Market Power

Author

Listed:
  • Dierker, E.
  • Dierker, H.

Abstract

Assuming asymmetry across firms and constant unit costs Perloff and Salop (1985) show: If product differentiation increases, the prices rise in a symmetric equilibrium. This raise the question of whether, in general, more product differentiation leads to higher market prices. Giving up the symmetry and the constant unit costs assumptions we present examples in which at least one firm lowers its equilibrium price when product differentiation increases. We formulate a model of product differentiation and state and discuss, within the theory of supermodular games, conditions ensuring that all firms raise their prices in a Nash equilibrium if product differentiation increases.

Suggested Citation

  • Dierker, E. & Dierker, H., 1998. "Product Differentiation and Market Power," Papers 9804, Washington St. Louis - School of Business and Political Economy.
    • Handle: RePEc:fth:waslbp:9804
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    Cited by:

    1. Michael B. Ward & Jay P. Shimshack & Jeffrey M. Perloff & J. Michael Harris, 2002. "Effects of the Private-Label Invasion in Food Industries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 961-973.
    2. Richards, Timothy J. & Hamilton, Stephen F. & Patterson, Paul M., 2010. "Spatial Competition and Private Labels," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 35(2), pages 1-26, August.
    3. Martin Peitz, 1998. "- Consumer Heterogeneity And Market Imperfections," Working Papers. Serie AD 1998-16, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    4. Corchón, Luis C. & García, Clara Eugenia, 2005. "Technology transfer in oligopolistic markets with heterogeneous goods," UC3M Working papers. Economics we057036, Universidad Carlos III de Madrid. Departamento de Economía.
    5. Hoernig, Steffen H., 2003. "Existence of equilibrium and comparative statics in differentiated goods Cournot oligopolies," International Journal of Industrial Organization, Elsevier, vol. 21(7), pages 989-1019, September.

    More about this item

    Keywords

    ENTERPRISES ; PRICES ; PRODUCTS;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

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