Transparency and Product Differentiation with Competing Vertical Hierarchies
We revisit the choice of product differentiation by competing firms in the Hotelling model, under the assumption that firms are vertically separated, and that retailers choose products’ characteristics. We show that retailers with private information about their marginal costs choose to produce less differentiated products than retailers with no private information, in order to increase their information rents. Hence, information asymmetry increases social welfare because it induces firms to sell products that appeal to a larger number of consumers. The socially optimal level of transparency between manufacturers and retailers depends on the weight assigned to consumers’ surplus and trades of two effects: higher transparency reduces price distortion but induces retailers to produce excessively similar products.
|Date of creation:||05 Jul 2011|
|Date of revision:|
|Publication status:||Forthcoming in Journal of Economics and Management Strategy|
|Contact details of provider:|| Postal: |
Phone: +39 081 - 675372
Fax: +39 081 - 675372
Web page: http://www.csef.it/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:sef:csefwp:288. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lia Ambrosio)
If references are entirely missing, you can add them using this form.