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Cannibalization within the Single Vertically Di¤erentiated Duopoly

Author

Listed:
  • Ryoma Kitamura

    (Graduate School of Economics, Kwansei Gakuin University)

  • Tetsuya Shinkai

    (School of Economics, Kwansei Gakuin University)

Abstract

We consider cannibalization in a duopoly model in which rms with di¤erent costs supply two vertically di¤erentiated products in the same market. We nd that an increase in the di¤erence in quality between the two goods or a decrease in the marginal cost of the high-quality goods leads to cannibalization. As a result, these goods keep low-quality goods from the market. Then, as the di¤erence in quality between the two goods increases from a su¢ ciently small to a su¢ ciently large level, we nd that 1) cannibalization from the low-quality good to the high- quality good of the e¢ cient rm expands, 2) cannibalization from the high-quality good to the low-quality good of the ine¢ cient rm shrinks. Further, we establish that 3) an increase in the production costs of the ine¢ cient rm improves social welfare when the di¤erence in quality between the two goods is su¢ ciently small.

Suggested Citation

  • Ryoma Kitamura & Tetsuya Shinkai, 2014. "Cannibalization within the Single Vertically Di¤erentiated Duopoly," Discussion Paper Series 124, School of Economics, Kwansei Gakuin University, revised Dec 2014.
    • Handle: RePEc:kgu:wpaper:124
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    References listed on IDEAS

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    Cited by:

    1. Tetsuya Shinkai & Ryoma Kitamura, 2019. "Production Substitution of Goods Within and Between Firms in a Multiproduct Duopoly," Discussion Paper Series 197, School of Economics, Kwansei Gakuin University.
    2. Tetsuya Shinkai & Ryoma Kitamura, 2021. "How Do the Relative Superiority of a High-quality Good and Cost Inefficiency between Firms Affect Product Lines in Multiproduct Firms?," Discussion Paper Series 230, School of Economics, Kwansei Gakuin University.

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    More about this item

    Keywords

    Multi-product rm; Duopoly; Cannibalization; Vertical product di¤erentiation;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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