Vertical Differentiation with Partial Share in Revenue and Profit

Swati Singla and Vishruti Gupta
Additional contact information
Swati Singla: Department of Economics, Delhi School of Economic
Vishruti Gupta: Department of Economics, Delhi School of Economic

No 353, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: We examine duopoly competition between firms with asymmetric quality, wherein firms compete sequentially in quality and price. We find that the partial shareholding of the high-quality firm in revenue (or profit) of the low-quality firm softens the competition. The market share of the high-quality firm decreases as the percentage of the share in revenue (or profit) increases. Further, we find that the improvement in quality by high-quality firm is lesser than by low-quality firms. The price charged by the high-quality firm is higher than that of the low-quality firm as the high-quality firm continues to have the quality advantage. Comparing the two scenarios, revenue sharing is more desirable than profit sharing for firms, giving higher total profits.Consumers and social planner prefer profit sharing between the firms as it leads to a higher surplus.

Keywords: Revenue share; Profit share; Vertical differentiation; Hoteling line. (search for similar items in EconPapers)
Pages: 44 pages
Date: 2024-12
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind, nep-mic and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.cdedse.org/pdf/work353.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cde:cdewps:353

Ordering information: This working paper can be ordered from
http://www.cdedse.org/

The price is free.

Access Statistics for this paper

More papers in Working papers from Centre for Development Economics, Delhi School of Economics Delhi 110 007. Contact information at EDIRC.
Bibliographic data for series maintained by Sanjeev Sharma ().