Hostname: page-component-78c5997874-lj6df Total loading time: 0 Render date: 2024-11-10T02:53:42.607Z Has data issue: false hasContentIssue false
  • English
  • Français

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
Get access

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 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

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.

References

Brito, D. and Oakland, W. (1977), Some Properties of the Optimal Income Tax, International Economic Review, vol. 18, n° 2, pp. 407–423.Google Scholar
Champsaur, P. and Rochet, J. (1985), Price Competition and Multiproduct Firms, CORE D.P., n 8532.Google Scholar
Champsaur, P. and Rochet, J. (1989), Multiproduct Duopolists, Econometrica, vol. 57, n° 3, pp. 533–557.Google Scholar
Fries, T. and Golding, E. (1986), The Welfare Consequences of Minimum Quality Standards with Price- and Quality-Choosing Duopolists, mimeo, Department of Economics, University of Florida.Google Scholar
Gabszewicz, J., Shared, A., Sutton, J. and Thisse, J. F. (1981), Price Competition Among Differentiated Products: A Detailed Study of a Nash Equilibrium, ICERD Working Paper, London School of Economics.Google Scholar
Gabszewicz, J. and Thisse, J.-F. (1979), Price Competition, Quality and Income Disparities, Journal of Economic Theory, vol. 20, n° 3, pp. 340–359.Google Scholar
Gabszewicz, J. and Thisse, J.-F. (1980), Entry (and Exit) in A Differentiated Industry, Journal of Economic Theory, vol. 22, n° 2, pp. 327–338.Google Scholar
Kluger, B. (1989), Implications of Quality Standard Regulation for Multi-product Monopoly Pricing, Managerial and Decision Economics, vol. 10, n 1, pp. 61–67.Google Scholar
Mirrlees, J. (1971), An Exploration in the Theory of Optimum Income Taxation, Review of Economic Studies, vol. 38, n° 2, pp. 175–208.Google Scholar
Mussa, M. and Rosen, S. (1978), Monopoly and Product Quality, Journal of Economic Theory, vol. 18, n° 2, pp. 301–317.Google Scholar
Peters, T. and Austin, N. (1985), A Passion for Excellence, New York, Random House.Google Scholar
Peters, T. and Waterman, R. H.. (1982), In Search of Excellence: Lessons from America’s Best-Run Companies, New York, Harper and Row.Google Scholar
Porter, M. (1980), Competitive Strategy, New York, Free Press.Google Scholar
Roberts, K. (1979), Welfare Considerations of Nonlinear Pricing, Economic Journal, vol. 89, n* 353, pp. 66–83.Google Scholar
Shared, A. and Sutton, J. (1982), Relaxing Price Competition Through Product Differentiation, Review of Economic Studies, vol. 49, n° 1, pp 3–14.Google Scholar
Shared, A. and Sutton, J. (1983), Natural Oligopolies, Econometrica, vol. 51, n° 5, pp. 1469–1484.Google Scholar
Sutton, J. (1986), Vertical Product Differentiation: Some Basic Themes, American Economic Review Papers and Proceedings, vol. 76, n° 2, pp. 393–398.Google Scholar