The Economics of Cannibalization: A Duopoly in which Firms Supply Two Vertically Differentiated Products
In this paper, we consider and propose a new duopoly model of cannibalization in which firms produce and sell two vertically differentiated products in the same market. We show that each firm produces the high-quality good more (less) than the low-quality good if the upper limit of taste of consumers is sufficiently high(not so high). Further, we find that the increase in the difference in quality between two goods leads to cannibalization, such that the high-quality goods keep out the low-quality goods from the market. Furthermore, we conduct a welfare analysis.
|Date of creation:||Feb 2013|
|Date of revision:||Feb 2013|
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- Glenn Ellison, 2003.
"A Model of Add-on Pricing,"
NBER Working Papers
9721, National Bureau of Economic Research, Inc.
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