The Differentiation Triangle.

This paper formalizes the observation that submarkets for high-quality and low-quality variants are markedly different from each other. The authors study a simple model where variants of low quality cannot be horizontally differentiated, whereas customers disagree about the value of variants in the high-quality range. They determine the outcome under price competition in the differentiation triangle with sequential entry when each firm can develop the vertical product line or decide to follow a niche strategy, i.e., to develop only one variant. Copyright 1997 by Blackwell Publishing Ltd