Strategic Choice on Product Line in Vertically Differentiated Duopoly

In a real oligopoly, firms often supply multiple products differentiated by quality in the same market. To examine why they do so, we consider a duopoly model in which firms can choose between supplying two vertically differentiated products and selling a single product in the same market. By deriving equilibriums for possible games and comparing their outcomes with each other, we explored the conditions in which firms strategically determine their product lines, choosing to sell between a single product and two products. The first three are the cases in which both firms supply both products, or they supply either homogeneous product of the two in the same market. The last two are those in which one firm supplies both but another firm does either of the two. We find that a firm producing only one product has an incentive to launch another product as long as it can do so.