Vertical Differentiation: Multiproduct Strategy to Face Entry?
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.
Year of publication: |
2006
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Authors: | Jean-Marc, Bonnisseau ; Rim, Lahmandi-Ayed |
Published in: |
The B.E. Journal of Theoretical Economics. - De Gruyter, ISSN 1935-1704. - Vol. 6.2006, 1, p. 1-14
|
Publisher: |
De Gruyter |
Saved in:
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