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Can Rivalry Increase Prices?

Christian Roessler ()

Microeconomics from EconWPA

Abstract: Spatially differentiated duopolists set higher-than-monopoly prices at some distances. This phenomenon is shown to occur in any finite- dimensional space for a class of reservation prices that covers concavity and convexity in perceived distance from a design. But an upper bound on the equilibrium duopoly price converges monotonically and quickly to the monopoly price in dimensionality. If consumers care about sufficiently many features of the product (a very small number of criteria is enough), monopoly nearly leads to an extreme price.

Keywords: price effect of competition; multidimensional product spaces; duopoly pricing; spatial competition (search for similar items in EconPapers)
JEL-codes: D40 D43 L10 L43 C72 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
Date: 2005-09-26, Revised 2006-02-14
Note: Type of Document - pdf; pages: 39
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpmi:0509007

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