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Product Line Strategy in a Vertically Differentiated Duopoly

Author

Listed:
  • Ryoma Kitamura

    (Graduate School of Economics, Kwansei Gakuin University)

  • Tetsuya Shinkai

    (School of Economics, Kwansei Gakuin University)

Abstract

We consider a duopoly model in which firms with different costs supply two vertically differentiated products in the same market. We show that the efficient firm produces more of the high-quality good and the inefficient one produces more of the low-quality good in equilibrium. We also find that a change in the quality superiority of goods and relative cost efficiency ratios leads to cannibalization from one good to the other and characterize graphically the product line strategies of firms through the two ratios.

Suggested Citation

  • Ryoma Kitamura & Tetsuya Shinkai, 2015. "Product Line Strategy in a Vertically Differentiated Duopoly," Discussion Paper Series 134, School of Economics, Kwansei Gakuin University.
    • Handle: RePEc:kgu:wpaper:134
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    References listed on IDEAS

    as
    1. Joan Calzada & Tommaso M. Valletti, 2012. "Intertemporal Movie Distribution: Versioning When Customers Can Buy Both Versions," Marketing Science, INFORMS, vol. 31(4), pages 649-667, July.
    2. Justin P. Johnson & David P. Myatt, 2003. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," American Economic Review, American Economic Association, vol. 93(3), pages 748-774, June.
    3. Ryoma Kitamura & Tetsuya Shinkai, 2013. "The Economics of Cannibalization: A Duopoly in which Firms Supply Two Vertically Differentiated Products," Discussion Paper Series 100, School of Economics, Kwansei Gakuin University, revised Feb 2013.
    4. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
    5. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

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    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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