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Vertical Differentiation And The Distribution Of Income

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  • Corrado Benassi
  • Alessandra Chirco
  • Caterina Colombo

Abstract

The paper analyses the effects of income concentration on the behaviour of a duopoly with vertical product differentiation and uncovered market. By using a trapezoid distribution, we solve explicitly for market equilibrium as a function of a mean preserving spread of the income distribution. We show that overall more concentrated incomes imply stronger product differentiation, as the presence of a large share of middle‐income consumers stimulates a price competition, whose effects are dampened through an enlargement of the quality spread. While the high‐quality advantage and market coverage increase unambiguously in the degree of income concentration, the behaviour of prices is non‐monotone in the distribution parameter.

Suggested Citation

  • 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.
    • Handle: RePEc:bla:buecrs:v:58:y:2006:i:4:p:345-367
    DOI: 10.1111/j.0307-3378.2006.00249.x
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Corrado Benassi & Marcella Scrimitore, 2017. "Income Distribution in Network Markets," Journal of Industry, Competition and Trade, Springer, vol. 17(3), pages 251-271, September.
    3. C. Benassi & A. Chirco & C. Colombo, 2015. "Beyond the Uniform Distribution: Equilibrium Prices and Qualities in a Vertically Differentiated Duopoly," Working Papers wp1044, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. Barigozzi, Francesca & Ma, Ching-to Albert, 2018. "Product differentiation with multiple qualities," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 380-412.
    5. Laine, Liisa T. & Ma, Ching-to Albert, 2017. "Quality and competition between public and private firms," Journal of Economic Behavior & Organization, Elsevier, vol. 140(C), pages 336-353.
    6. Francesco Angelini & Corrado Benassi & Massimiliano Castellani, 2021. "Platform competition and willingness to pay in a vertical differentiated two-sided market," Economics Bulletin, AccessEcon, vol. 41(2), pages 772-780.
    7. Benassi, Corrado & Castellani, Massimiliano & Mussoni, Maurizio, 2016. "Price equilibrium and willingness to pay in a vertically differentiated mixed duopoly," Journal of Economic Behavior & Organization, Elsevier, vol. 125(C), pages 86-96.
    8. Liu, Ting & Albert Ma, Ching-to & Mak, Henry Y., 2018. "Incentives for motivated experts in a partnership," Journal of Economic Behavior & Organization, Elsevier, vol. 152(C), pages 296-313.
    9. Ngo Van Long & Zhuang Miao, 2020. "Multiple‐quality Cournot oligopoly and the role of market size," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(4), pages 932-952, October.
    10. Alventosa, Adriana & Pacheco Pires, Cesaltina & Ferreira Jorge, Sílvia & Pinho, Joana & Catalão-Lopes, Margarida, 2023. "How does firms’ cost structure affect their quality–price mix? An experimental analysis," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 107(C).
    11. Ornella Tarola & Cecilia Vergari, 2015. "Asymmetric Complements in a Vertically Differentiated Market: Competition or Integration?," Manchester School, University of Manchester, vol. 83(1), pages 72-100, January.
    12. Miao, Zhuang & Li, Yifan & Duan, Sisong, 2020. "Income inequality of destination countries and trade patterns: Evidence from Chinese firm-level data," MPRA Paper 99441, University Library of Munich, Germany.
    13. Janko Hernández Cortés & Paolo Morganti, 2022. "Existence and uniqueness of price equilibria in location-based models of differentiation with full coverage," Journal of Economics, Springer, vol. 136(2), pages 115-148, July.
    14. Garella, Paolo G. & Lambertini, Luca, 2014. "Bidimensional vertical differentiation," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 1-10.
    15. Cheng, Yi-Ling, 2014. "Vertical product differentiation under demand uncertainty," Economic Modelling, Elsevier, vol. 36(C), pages 51-57.
    16. Corrado Benassi & Alessandra Chirco & Caterina Colombo, 2019. "Vertical differentiation beyond the uniform distribution," Journal of Economics, Springer, vol. 126(3), pages 221-248, April.
    17. Namrata Gulati & Prabal Roy Chowdhury, 2010. "Income inequality, neighbourhood effects and product quality," Discussion Papers 10-06, Indian Statistical Institute, Delhi.
    18. Francisco Martínez-Sánchez, 2022. "Privatization Policies by National and Regional Governments," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 24(02), pages 1-23, June.
    19. Miao, Zhuang, 2019. "Income Distribution, Vertical Differentiation, and the Quantity Competition," MPRA Paper 95104, University Library of Munich, Germany.

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