Corporate cannibalism in an oligopolistic market

Xingtang Wang and Leonard F. S. Wang

International Journal of Economic Theory, 2022, vol. 18, issue 3, 402-417

Abstract: In this paper, we consider whether a firm that produces high‐quality products chooses to produce lower‐quality products. We find that when there is only one monopoly in the market, the monopoly will only produce a single‐quality product. When there are two firms in the market, one produces high‐quality products and the other one produces low‐quality products. When certain conditions are met, the firm that produces high‐quality products has an incentive to produce products of medium or lower quality, thus profiting. The production of new products by a firm will bring about the improvement of consumer surplus and social welfare.

Date: 2022
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