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Vertical differentiation and collusion: pruning or proliferation?

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  • Jean Gabszewicz, Jean
  • Marini, Marco A.
  • Tarola, Ornella

Abstract

In this paper, we tackle the dilemma of pruning versus proliferation in a vertically differentiated oligopoly under the assumption that some firms collude and control both the range of variants for sale and their corresponding prices, likewise a multi-product firm. We analyse whether pruning emerges and, if so, a fighting brand is marketed. We find that it is always more profitable for colluding firms to adopt a pricing strategy such that some variants are withdrawn from the market. Under pruning, these firms commercialize a fighting brand only when facing competitors in a low-end market.

Suggested Citation

  • Jean Gabszewicz, Jean & Marini, Marco A. & Tarola, Ornella, 2016. "Vertical differentiation and collusion: pruning or proliferation?," MPRA Paper 74599, University Library of Munich, Germany, revised 15 Oct 2016.
    • Handle: RePEc:pra:mprapa:74599
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    Cited by:

    1. Marco A. Marini, 2018. "Collusive agreements in vertically differentiated markets," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume II, chapter 3, pages 34-56, Edward Elgar Publishing.
    2. Bos, Iwan & Marini, Marco A. & Saulle, Riccardo D., 2020. "Cartel formation with quality differentiation," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 36-50.
    3. Gabszewicz, Jean J. & Marini, Marco A. & Tarola, Ornella, 2016. "Core existence in vertically differentiated markets," Economics Letters, Elsevier, vol. 149(C), pages 28-32.
    4. Gabszewicz Jean J. & Marini Marco A. & Tarola Ornella, 2019. "Endogenous Mergers in Markets with Vertically Differentiated Products," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(1), pages 1-22, January.
    5. Mantovani, Andrea & Tarola, Ornella & Vergari, Cecilia, 2016. "Hedonic and environmental quality: A hybrid model of product differentiation," Resource and Energy Economics, Elsevier, vol. 45(C), pages 99-123.
    6. Stanislav Stoykov & Ivan Kostov, 2023. "Price Competition with Differentiated Products on a Two-Dimensional Plane: The Impact of Partial Cartel on Firms’ Profits and Behavior," Games, MDPI, vol. 14(2), pages 1-25, March.

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    More about this item

    Keywords

    Vertically Differentiated Markets; Cannibalization; Market Pruning; Price Collusion.;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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