Product quality, competition, and multi-purchasing

Simon Anderson, Øystein Foros and Hans Jarle Kind

No 2012/9, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: In a Hotelling duopoly model, we introduce quality that is more appreciated by closer consumers. Then higher common quality raises equilibrium prices, in contrast to the standard neutrality result. Furthermore, we allow consumers to buy one out of two goods (single-purchase) or both (multi-purchase). Prices are strategically independent when some consumers multi-purchase because suppliers price the incremental benefit to marginal consumers. In a multi-purchase regime, there is a hump-shaped relationship between equilibrium prices and quality when quality functions overlap. If quality is sufficiently good, it might be a dominant strategy for each supplier to price high and eliminate multi-purchase.

Keywords: Hotelling model with quality; multi-purchase; incremental pricing; content competition (search for similar items in EconPapers)
JEL-codes: D00 D40 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2012-08-28
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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