Multiproduct Duopoly with Vertical Di¤erentiation
The paper investigates a two-stage competition in a vertical di¤erentiated industry, where each firm produces an rbitrary number of similar qualities and sells them to heterogeneous consumers. We show that, when unit costs of quality are increasing and quadratic, each firm has an incentive to provide an interval of qualities. The finding is in sharp contrast to the single-quality outcome when the market coverage is exogenously determined. We also show that allowing for an interval of qualities intensi es competition, lowers the profi ts of each fi rm and raises the consumer surplus and the social welfare in comparison to the single-quality duopoly.
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- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
- Bonnisseau Jean-Marc & Lahmandi-Ayed Rim, 2006. "Vertical Differentiation: Multiproduct Strategy to Face Entry?," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-14, November.
- K. Sridhar Moorthy, 1988. "Product and Price Competition in a Duopoly," Marketing Science, INFORMS, vol. 7(2), pages 141-168.
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