Vertical Product Differentiation and Taste Differences

Marie-Paule Donsimoni and Johnathan H. Hamilton
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Marie-Paule Donsimoni: WEFA Holdings, London
Johnathan H. Hamilton: University of Florida

No 1991012, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: The finiteness condition of vertical product differentiation models is translated into the taste distribution model first analyzed by Mussa and Rosen. For a utility function linear in quality, the necessary and sufficient condition for finiteness is that the cost function with respect to quality is strictly concave. Furthermore, for these cost functions, in duopoly, higher quality always implies a higher market share at the Nash equilibrium in prices. The n-firm case is briefly discussed, and some implications for marketing strategy of new products are presented.

Pages: 11
Date: 1991-03-01
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