Template-type: ReDif-Paper 1.0
Author-Name: Bos, Iwan
Author-workplace-name: RS: GSBE Theme Conflict & Cooperation, Organisation,Strategy & Entrepreneurship
Author-Name: Peeters, Ronald
Title: Price Competition in a Vertizontally Differentiated Duopoly
Abstract: This paper analyzes price competition in a duopoly market in which products are both horizontally and vertically differentiated. Firms offer a basic and a premium product to buyers, some of whom are brand loyal. We establish the existence of a unique and symmetric Nash pricing equilibrium. Equilibrium prices are increasing in the degree of horizontal differentiation and the amount of brand loyal customers. The equilibrium price of the basic (premium) good is decreasing (increasing) in the quality difference and profits can increase in costs when this difference is high enough. If the pricing decision is taken at the product (division) level, then there is again a unique (and symmetric) Nash equilibrium. Equilibrium prices and profits are lower than in the centralized case and demand for the basic product is higher when the quality difference is sufficiently large. Welfare is unambiguously lower with decentralized pricing.
Classification-JEL: d43,l13
Series: GSBE Research Memoranda
Creation-Date: 20190620
Number: 017
File-URL: https://cris.maastrichtuniversity.nl/ws/files/34893726/RM19017.pdf
File-Format: application/pdf
File-Size: 516126
Handle: Repec:unm:umagsb:2019017
DOI: 10.26481/umagsb.2019017