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Vertical Differentiation With Optimistic Misperceptions And Information Disparities

Author

Listed:
  • Alberto Cavaliere

    (Department of Economics and Management, University of Pavia)

  • Giovanni Crea

    (Department of Economics and Management, University of Pavia)

Abstract

We consider vertical differentiation with quality uncertainty and information disparities, in a duopoly where products have credence attributes and a minimum quality standard exists. Optimistic misperceptions further relax price competition but uninformed consumers may be cheated in equilibrium due to minimum product differentiation when informed consumers buy low quality goods. Optimistic misperceptions turn out to be an incentive for product differentiation when informed consumers buy high quality goods, even if the real quality differentiual is always lower than expected by uninformed consumers. Increasing the share of informed consumers may counterbalance the effect of optimism on equilibrium prices but in the meantime reduce the incentives for product differentiation.

Suggested Citation

  • Alberto Cavaliere & Giovanni Crea, 2017. "Vertical Differentiation With Optimistic Misperceptions And Information Disparities," DEM Working Papers Series 137, University of Pavia, Department of Economics and Management.
    • Handle: RePEc:pav:demwpp:demwp0137
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    File URL: http://dem-web.unipv.it/web/docs/dipeco/quad/ps/RePEc/pav/demwpp/DEMWP0137.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Peter Michaelis & Thomas Ziesemer, 2022. "Minimum quality standards and benchmarking in differentiated duopoly," The Japanese Economic Review, Springer, vol. 73(3), pages 515-537, July.

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    More about this item

    Keywords

    asymmetric information; brand premium; quality uncertainty;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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