Product Lines and Price Discrimination in Markets with Information Frictions

Natalia Fabra and Juan-Pablo Montero

No 12046, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: A well known principle in economics is that firms differentiate their product offerings in order to relax competition. However, in this paper we show that in-formation frictions can invalidate this principle. We build a duopolistic model of second-degree price competition with information frictions in which (i) there always exists an equilibrium with overlapping qualities, whereas (ii) the equilibrium with non-overlapping qualities exists only when both information frictions and the costs of providing high quality are small enough. As a consequence, reasons other than the attempt to soften competition should be used to explain why firms in some cases carry non-overlapping product lines.

Keywords: Product strategy; Pricing strategy; Second degree price discrimination; Search; Vertical differentiation; Retail competition (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-com, nep-mic and nep-mkt
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Citations: View citations in EconPapers (2)

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Journal Article: Product Lines and Price Discrimination in Markets with Information Frictions (2022)
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