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Beyond the Uniform Distribution: Equilibrium Prices and Qualities in a Vertically Differentiated Duopoly

Author

Listed:
  • Caterina Colombo
  • Corrado Benassi
  • Alessandra Chirco

Abstract

The paper proves the existence of a subgame perfect Nash equilibrium in a vertically differentiated duopoly with uncovered market, for a large set of symmetric and asymmetric distributions of consumers, including, among others, all logconcave distributions. The proof relies on the ’income share elasticity’ representation of the consumers’ density function, which ensures the analytical tractability of the firms’ optimality conditions at a high level of generality. Some illustrative examples of the solution are offered, in order to assess the impact of distributive shocks on the equilibrium market configuration.

Suggested Citation

  • Caterina Colombo & Corrado Benassi & Alessandra Chirco, 2015. "Beyond the Uniform Distribution: Equilibrium Prices and Qualities in a Vertically Differentiated Duopoly," Working Papers 2015154, University of Ferrara, Department of Economics.
    • Handle: RePEc:udf:wpaper:2015154
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    References listed on IDEAS

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    1. Jean‐Marc Bonnisseau & Rim Lahmandi‐Ayed, 2007. "Vertical differentiation with non‐uniform consumers' distribution," International Journal of Economic Theory, The International Society for Economic Theory, vol. 3(3), pages 179-190, September.
    2. Osharin, Alexander & Thisse, Jacques-François & Ushchev, Philip & Verbus, Valery, 2014. "Monopolistic competition and income dispersion," Economics Letters, Elsevier, vol. 122(2), pages 348-352.
    3. Yurko, Anna V., 2011. "How does income inequality affect market outcomes in vertically differentiated markets?," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 493-503, July.
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    6. An, Mark Yuying, 1998. "Logconcavity versus Logconvexity: A Complete Characterization," Journal of Economic Theory, Elsevier, vol. 80(2), pages 350-369, June.
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    10. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    11. Corrado Benassi & Alessandra Chirco & Caterina Colombo, 2006. "Vertical Differentiation And The Distribution Of Income," Bulletin of Economic Research, Wiley Blackwell, vol. 58(4), pages 345-367, October.
    12. Corrado Benassi & Alessandra Chirco & Caterina Colombo, 2005. "A Model Of Monopolistic Competition With Personal Income Dispersion," Metroeconomica, Wiley Blackwell, vol. 56(3), pages 305-317, July.
    13. Esteban, Joan M, 1986. "Income-Share Elasticity and the Size Distribution of Income," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 439-444, June.
    14. Corrado Benassi & Alessandra Chirco & Marcella Scrimitore, 2002. "Income concentration and market demand," Oxford Economic Papers, Oxford University Press, vol. 54(4), pages 584-596, October.
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    Cited by:

    1. Barigozzi, Francesca & Ma, Ching-to Albert, 2018. "Product differentiation with multiple qualities," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 380-412.

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    More about this item

    Keywords

    Vertical differentiation; duopoly; non-uniform distribution; subgame perfect equilibrium; income share elasticity;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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