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Multiproduct Duopoly with Vertical Differentiation
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Multiproduct Duopoly with Vertical Differentiation

Author

Listed:
  • Cheng Yi-Ling

    (Tunghai University and Academia Sinica, ylcheng@thu.edu.tw)

  • Peng Shin-Kun

    (Academia Sinica and National Taiwan University, speng@econ.sinica.edu.tw)

  • Tabuchi Takatoshi

    (University of Tokyo, ttabuchi@e.u-tokyo.ac.jp)

Abstract

This paper investigates a two-stage competition in a vertically differentiated industry, where each firm produces an arbitrary number of similar qualities and sells them to heterogeneous consumers. The number of products, qualities, prices, and the extent of the market coverage are endogenously determined. We show that when unit costs of quality improvement are increasing and quadratic, each firm has an incentive to provide a disconnected set of similar qualities approximating a continuum. The finding contrasts sharply with the single-quality outcome when the market coverage is exogenously determined. We also show that allowing for multiple qualities intensifies the level of competition, lowers the profit of each firm, and raises the consumer surplus and the social welfare in comparison to the single-quality duopoly.

Suggested Citation

  • 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.
    • Handle: RePEc:bpj:bejtec:v:11:y:2011:i:1:n:16
    DOI: 10.2202/1935-1704.1800
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    References listed on IDEAS

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    Cited by:

    1. Sun, Shaoyan & An, Henry, 2013. "Reputation and Multiproduct-firm Behavior: Product Line and Price Rivalry Among Retailers," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 151146, Agricultural and Applied Economics Association.
    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. Evdokia Dritsa & Eleftherios Zacharias, 2012. "Price Competition in a Duopoly Characterized by Positional Effects," Working Papers 12-21, NET Institute.
    4. Amit Gayer, 2023. "Duopoly and Endogenous Single Product Quality Strategies," Games, MDPI, vol. 14(4), pages 1-11, August.
    5. 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.

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    More about this item

    Keywords

    multiproduct firms; market segmentation; quality competition; continuum of qualities; vertical product differentiation;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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