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Perception and quality choice in vertically differentiated markets

Author

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  • Edward J. Webb

    (Department of Economics, Copenhagen University)

Abstract

Consumers are assumed to be unable to discriminate between two goods of differing qualities provided that the qualities are close enough. It is shown that in a vertically differentiated duopoly this results in multiple equilibria. Demand for each firm's good is reduced. Firms' profits may be higher or lower depending on which equilibrium is selected.

Suggested Citation

  • Edward J. Webb, 2014. "Perception and quality choice in vertically differentiated markets," Discussion Papers 14-07, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:1407
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    File URL: http://www.econ.ku.dk/english/research/publications/wp/dp_2014/1407.pdf
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    References listed on IDEAS

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    Cited by:

    1. Edward J. D. Webb, 2017. "If It’s All the Same to You: Blurred Consumer Perception and Market Structure," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(1), pages 1-25, February.

    More about this item

    Keywords

    Perception; bounded rationality; vertical differentiation; oligopoly;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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