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

David Encaoua () and Hollander Abraham
Additional contact information
Hollander Abraham: Université de Montréal, abraham.j.hollander@umontreal.ca

The B.E. Journal of Theoretical Economics, 2007, vol. 7, issue 1, 21

Abstract: The paper examines under what conditions vertically differentiated duopolists engage in first-degree price discrimination. Each firm decides on a pricing regime at a first stage and sets prices at a second stage. The paper shows that when unit cost is an increasing and convex function of quality, the discriminatory regime is the unique subgame-perfect equilibrium of such two-stage game. In contrast to the case of horizontal differentiation, the discriminatory equilibrium is not necessarily Pareto-dominated by a bilateral commitment to uniform pricing. Also, the quality choices of perfectly discriminating duopolists are welfare maximizing. The paper explains why a threat of entry may elicit price discrimination by an incumbent monopolist.

Keywords: discrimination; duopoly; quality choice (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (9)

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Related works:
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)
Working Paper: First-Degree Discrimination by a Duopoly: Pricing and Quality Choice (2005)
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DOI: 10.2202/1935-1704.1276

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