Product Differentiation in a Vertical Structure

Han Tien- Der, Haque M. Emranul and Arijit Mukherjee
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Han Tien- Der: Loughborough University, Loughborough, UK
Haque M. Emranul: Department of Economics, The University of Manchester, Manchester, UK

The B.E. Journal of Theoretical Economics, 2022, vol. 22, issue 1, 105-122

Abstract: We consider final goods producers’ preference for horizontal product differentiation in the presence of strategic input price determination. Final goods producers may not prefer maximal differentiation but may prefer moderate differentiation under both Cournot and Bertrand competition in the final goods market if product differentiation does not increase the market size significantly and there is either free entry in the input market or the input supplier has increasing returns to scale technology. Thus, we provide a new rationale for moderate product differentiation. Our reasons are different from the existing reasons of mixed pricing strategy, endogenous leadership, no-buy option for the consumers and the relative performance incentive schemes.

Keywords: entry; final goods; increasing returns; input; product differentiation (search for similar items in EconPapers)
JEL-codes: D43 L11 L13 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1515/bejte-2020-0037

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