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Product quality, competition, and multi-purchasing

  • Anderson, Simon P.

    ()

    (Dept. of Economics, University of Virginia)

  • Foros, Øystein

    ()

    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Kind, Hans Jarle

    ()

    (Dept. of Economics, Norwegian School of Economics)

In a Hotelling duopoly model, we introduce quality that is more appreciated by closer consumers. Then higher common quality raises equilibrium prices, in contrast to the standard neutrality result. Furthermore, we allow consumers to buy one out of two goods (single-purchase) or both (multi-purchase). Prices are strategically independent when some consumers multi-purchase because suppliers price the incremental benefit to marginal consumers. In a multi-purchase regime, there is a hump-shaped relationship between equilibrium prices and quality when quality functions overlap. If quality is sufficiently good, it might be a dominant strategy for each supplier to price high and eliminate multi-purchase.

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File URL: http://hdl.handle.net/11250/164202
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Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2012/9.

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Length: 37 pages
Date of creation: 28 Aug 2012
Date of revision:
Handle: RePEc:hhs:nhhfms:2012_009
Contact details of provider: Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspxEmail:


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