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The Economics of Cannibalization: A Duopoly in which Firms Supply Two Vertically Differentiated Products

  • Ryoma Kitamura

    ()

    (Graduate School of Economics, Kwansei Gakuin University)

  • Tetsuya Shinkai

    ()

    (School of Economics, Kwansei Gakuin University)

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.

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File URL: http://192.218.163.163/RePEc/pdf/kgdp100.pdf
File Function: First version, 2013
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Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 100.

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Length: 21 pages
Date of creation: Feb 2013
Date of revision: Feb 2013
Handle: RePEc:kgu:wpaper:100
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  1. Glenn Ellison, 2005. "A Model of Add-on Pricing," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 585-637, May.
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