First-Degree Discrimination by a Duopoly: Pricing and Quality Choice

David Encaoua () and Abraham J. Hollander

Cahiers de recherche from Universite de Montreal, Departement de sciences economiques

Abstract: The paper investigates competition in price schedules among vertically differentiated dupolists. First order price discrimination is the unique Nash equilibrium of a sequential game in which firms determine first whether or not to commit to a uniform price, and then simultaneously choose either a single price of a price schedule. Whether the profits earned by both firms are larger or smaller under discrimination than under uniform pricing depends on the quality gap between firms, and on the disparity of consumer preferences. Firms engaged in first degree discrimination choose quality levels that are optimal from a welfare perspective. The paper also reflects on implications of these findings for pricing policies of an incumbent threatened by entry.

Pages: 24 pages
Date: 2005
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http://hdl.handle.net/1866/530 (application/pdf)

Related works:
Journal Article: First-Degree Discrimination by a Duopoly: Pricing and Quality Choice (2007)
Working Paper: First-Degree Discrimination by a Duopoly: Pricing and Quality Choice (2007)
Working Paper: First-Degree Discrimination by a Duopoly: Pricing and Quality Choice (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:mtl:montde:2005-01

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