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Vertical Differentiation: Multiproduct Strategy to Face Entry?

Author

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  • Bonnisseau Jean-Marc

    (CES, Université Paris 1 Pantheon-Sorbonne, UMR CNRS 8174)

  • Lahmandi-Ayed Rim

    (ESSAI and LEGI-Ecole Polytechnique de Tunisie, La Marsa, Tunisia)

Abstract

In this paper, we consider an incumbent firm facing potential entry in a vertical differentiation model a la Mussa and Rosen where consumers differ only by their intensity of preference for quality. We ask whether the incumbent firm has the incentive to adopt a multi-product strategy in order to face entry, in a natural duopoly case. It turns out that this strategy is never profitable and that an incumbent always prefers to produce one quality. It appears that either a cost effect or an income dispersion are necessary to urge producers to offer several products.

Suggested Citation

  • 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 1-16, November.
    • Handle: RePEc:bpj:bejtec:v:topics.6:y:2006:i:1:n:15
    DOI: 10.2202/1534-598X.1282
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    Citations

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    Cited by:

    1. Gabszewicz Jean J. & Marini Marco A. & Tarola Ornella, 2019. "Endogenous Mergers in Markets with Vertically Differentiated Products," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(1), pages 1-22, January.
    2. Müller, Stephan & Götz, Georg, 2014. "Quality competition and entry deterrence: When to launch an extra brand," University of Göttingen Working Papers in Economics 223, University of Goettingen, Department of Economics.
    3. Gabszewicz, Jean J. & Marini, Marco A. & Tarola, Ornella, 2017. "Vertical differentiation and collusion: Pruning or proliferation?," Research in Economics, Elsevier, vol. 71(1), pages 129-139.
    4. Lahmandi-Ayed, Rim, 2010. "Spatial differentiation, divisible consumption and the pro-competitive effect of income," Journal of Mathematical Economics, Elsevier, vol. 46(1), pages 71-85, January.
    5. Cheng Yi-Ling & Peng Shin-Kun & Tabuchi Takatoshi, 2011. "Multiproduct Duopoly with Vertical Differentiation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-29, August.
    6. Jean Gabszewicz & Ornella Tarola, 2012. "Product innovation and firms’ ownership," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 21(4), pages 323-343, April.
    7. Tian Xia & Richard Sexton, 2010. "Brand or Variety Choices and Periodic Sales as Substitute Instruments for Monopoly Price Discrimination," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 36(4), pages 333-349, June.
    8. Rim Lassoued & Konstantinos Giannakas, 2010. "Economic Effects of the Consumer‐oriented Genetically Modified Products in Markets with a Labelling Regime," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(3), pages 499-526, September.
    9. GABSZEWICZ, Jean & TAROLA, Ornella, 2010. "Product innovation and market acquisition of firms," LIDAM Discussion Papers CORE 2010078, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. Peter-J. Jost, 2023. "Price commitment and the strategic launch of a fighter brand," Quantitative Marketing and Economics (QME), Springer, vol. 21(3), pages 381-435, September.
    11. Jean J. Gabszewicz & Marco A. Marini & Ornella Tarola, 2016. "Vertical Differentiation and Collusion: Cannibalization or Proliferation?," Working Papers 2016.15, Fondazione Eni Enrico Mattei.
    12. Yi-Ling Cheng & Shin-Kun Peng, 2014. "Price competition and quality differentiation with multiproduct firms," Journal of Economics, Springer, vol. 112(3), pages 207-223, July.
    13. Jean J. Gabszewicz & Marco A. Marini & Ornella Tarola, 2016. "Vertical Differentiation and Collusion: Cannibalization or Proliferation?," Working Papers 2016.15, Fondazione Eni Enrico Mattei.

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