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Multiproduct Duopoly with Vertical Differentiation

  • Yi-Ling Cheng

    (Department of Economics, National Taiwan University)

  • Shin-Kun Peng

    (Academia Sinica and National Taiwan University)

  • Takatoshi Tabuchi

    (Faculty of Economics, University of Tokyo)

The paper investigates a two-stage competition in a vertical differentiated industry, where each firm produces an arbitrary 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 intensifies competition, lowers the profits of each firm and raises the consumer surplus and the social welfare in comparison to the single-quality duopoly.

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File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2010/2010cf739.pdf
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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-739.

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Length: 25pages
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:tky:fseres:2010cf739
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  1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  2. 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.
  3. K. Sridhar Moorthy, 1988. "Product and Price Competition in a Duopoly," Marketing Science, INFORMS, vol. 7(2), pages 141-168.
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