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Electronic coordination in oligopolistic markets: Impact on transport costs and product differentiation

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  • Bandulet, Martin
  • Morasch, Karl

Abstract

Electronic coordination links markets at different locations that have initially been (partially) separated by transport costs. Rising competitive pressure should in turn affect incentives to differentiate products. In this paper investment decisions concerning transport cost reduction and product differentiation are analyzed in a heterogenous product duopoly where firms compete in two spatially separated markets. We show that firms always have nonnegative incentives to invest in transport cost reduction, while there exist parameter ranges where product differentiation will actually be reduced after an exogenous reduction of transport cost. We also compare social and privat investment incentives for both price strategies (most likely with digital products) and quantity competition (capacity decisions for physical products). Based on these results we discuss in detail how investment decisions are likely to differ from the efficient solution for each of the two kind of products.

Suggested Citation

  • Bandulet, Martin & Morasch, Karl, 2002. "Electronic coordination in oligopolistic markets: Impact on transport costs and product differentiation," Working Papers in Economics 2002,4, Bundeswehr University Munich, Economic Research Group.
  • Handle: RePEc:zbw:ubwwpe:20024
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    Cited by:

    1. Sell, Friedrich L., 2007. "More about economic and non-economic determinants of (mutual) trust and trustworthiness," Working Papers in Economics 2007,2, Bundeswehr University Munich, Economic Research Group.

    More about this item

    Keywords

    Electronic markets; Strategic investments; Transport costs; Product differentiation; Elektronische Märkte; Strategische Investition; Transportkosten; Produktdifferentierung;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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