Product Line Strategy within a Vertically Differentiated Duopoly under Non-negativity Outputs Constraints

Tetsuya Shinkai () and Ryoma Kitamura ()
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Ryoma Kitamura: Faculty of Economics, Ryukoku University

No 179, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: We consider product line strategies of duopolistic firms supplying two vertically differentiated products with non-negativity output constraint and its expectation on rival's product line reaction. We consider a game in which there exists a heterogeneous unit production costs in high quality goods but is homogeneous in low quality product between firms. We derive equilibria for the game and characterize graphically firms' product line strategies and the realized profits of both firms through quality superiority and relative cost efficiency ratios. We also show that the efficient cost firm earns more than the inefficient firm except for the special case where both firms specialize in low quality good. We also illustrate that firms can correctly conjecture the ex ante relationship between the quality superiority of both goods and the relative cost efficiency ratios of firms on high quality good ex post in equilibrium.

Keywords: Multi-product firm; Duopoly; Substitution of Production between products; Vertical product differentiation (search for similar items in EconPapers)
JEL-codes: D21 D43 L13 L15 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2018-05
New Economics Papers: this item is included in nep-bec, nep-com, nep-gth and nep-ind
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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:179

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