Vertical Product Differentiation, Market Entry, and Welfare

Markus Reisinger

Discussion Papers in Economics from University of Munich, Department of Economics

Abstract: This paper analyses a model of vertical product differentiation with one incumbent and one entrant firm. It is shown that if firms can produce only one quality level welfare in this entry game can be lower than in monopoly. This is the case if qualities are strategic complements because the incumbent may distort its quality downwards. If firms can produce a quality range and practice non-linear pricing welfare in case of entry deterrence is higher than in monopoly because the incumbent enlarges its product line. If entry is accommodated consumer rent increases but the consequences on welfare are ambiguous.

Keywords: Entry Deterrence; Price Discrimination; Vertical Differentiation (search for similar items in EconPapers)
JEL-codes: D43 L13 L65 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-com
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenec:479

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