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Vertical Product Differentiation and Taste Differences

Published online by Cambridge University Press:  17 August 2016

Marie-Paule Donsimoni  and
Jonathan H. Hamilton
Marie-Paule Donsimoni
Affiliation:
WEFA Holdings, London
Jonathan H. Hamilton
Affiliation:
University of Florida
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Summary

The finiteness condition of vertical product differentiation models is translated into the taste distribution model first analyzed by Mussa and Rosen. For a utility function linear in quality, the necessary and sufficient condition for finiteness is that the cost function with respect to quality is strictly concave. Furthermore, for these cost functions, in duopoly, higher quality always implies a higher market share at the Nash equilibrium in prices. The n-firm case is briefly discussed, and some implications for marketing strategy of new products are presented.

Résumé

Résumé

Nous étudions la propriété de finitude des modèles de differenciation verticale dans le cadre d’un modèle avec dispersion des goûts. Lorsque la fonction d’utilité est linéaire par rapport à la qualité, on obtient la propriété de finitude si et seulement si la fonction de coût est strictement concave par rapport à la qualité. En outre, dans le cas particulier de deux firmes, la firme vendant le produit de haute qualité possède plus de la moitié du marché à l’équilibre de Nash en prix. Enfin, on discute brièvement le cas de plusieurs firmes et on en déduit quelques implications pour les stratégies de choix de nouveaux produits.

Keywords

611621611621
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 57 , Issue 1 , 1991 , pp. 21 - 32
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1991 

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Footnotes

*

This research was undertaken during visits by the second author to CORE and CRIDE (Université Catholique de Louvain). The first author was at Université Catholique de Louvain at the time. The second author thanks the College of Business Administration (University of Florida) and Institut des Sciences Economiques (UCL) for financial support. We wish to thank J. Gabszewicz, E. Golding and J.-F. Thisse for helpful discussion.

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