Are Markets More Competitive if Commodities are Closer Substitutes?

Norbert Schulz

No 1268, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Equilibrium prices of the variants of a differentiated commodity are shown to increase if the variants become closer substitutes, under a set of circumstances, which is by no means pathological. Rather, the underlying argument has a bearing on market prices, whenever a potential buyer does not know with certainty the characteristics of the variants for sale before inspecting them, and therefore must incur some information costs before the final purchase decision.

Keywords: Oligopoly; Product Differentiation; Search Goods; Substitutability (search for similar items in EconPapers)
JEL-codes: D43 D83 L13 R34 (search for similar items in EconPapers)
Date: 1995-11
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Citations: View citations in EconPapers (3)

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