Multiproduct Duopoly with Vertical Differentiation
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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- Wauthy, X., 1994.
"Quality Choice in Models of Vertical Differentiation,"
Discussion Papers (IRES - Institut de Recherches Economiques et Sociales)
1994033, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
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- Gayer Amit, 2007. "Oligopoly, Endogenous Monopolist and Product Quality," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-21, August.
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"Product Line Rivalry with Brand Differentiation,"
Economics Working Papers
89-103, University of California at Berkeley.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, September.
- K. Sridhar Moorthy, 1984. "Market Segmentation, Self-Selection, and Product Line Design," Marketing Science, INFORMS, vol. 3(4), pages 288-307.
- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- Jean-Marc Bonnisseau & Rim Lahmandi-Ayed, 2006.
"Vertical Differentiation: Multiproduct Strategy to Face Entry?,"
Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers)
- 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.
- Choi, Chong Ju & Shin, Hyun Song, 1992. "A Comment on a Model of Vertical Product Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 229-231, June.
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