Product differentiation with multiple qualities
Files
Accepted manuscript
Date
2018-11
Authors
Barigozzi, Francesca
Ma, Ching-to Albert
Version
Accepted manuscript
OA Version
Citation
Francesca Barigozzi, Ching-to Albert Ma. 2018. "Product differentiation with multiple qualities." International Journal of Industrial Organization, Volume 61, pp. 380 - 412. https://doi.org/10.1016/j.ijindorg.2018.10.002
Abstract
We study subgame-perfect equilibria of the classical quality-price, multistage game of vertical product differentiation. Each of two firms can choose the levels of an arbitrary number of qualities. Consumers’ valuations are drawn from independent and general distributions. The unit cost of production is increasing and convex in qualities. We characterize equilibrium prices, and the effects of qualities on the rival’s equilibrium price in the general model. Equilibrium qualities depend on what we call the Spence and price-reaction effects. For any equilibrium, we characterize conditions for quality differentiation.