Vertical Differentiation: Multiproduct Strategy to Face Entry?

Jean-Marc Bonnisseau and Rim Lahmandi-Ayed

The B.E. Journal of Theoretical Economics, 2006, vol. 6, issue 1, 16

Abstract: In this paper, we consider an incumbent firm facing potential entry in a vertical differentiation model a la Mussa and Rosen where consumers differ only by their intensity of preference for quality. We ask whether the incumbent firm has the incentive to adopt a multi-product strategy in order to face entry, in a natural duopoly case. It turns out that this strategy is never profitable and that an incumbent always prefers to produce one quality. It appears that either a cost effect or an income dispersion are necessary to urge producers to offer several products.

Keywords: vertical differentiation; multiproduct strategy; entry (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (16)

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Working Paper: Vertical Differentiation: Multiproduct Strategy to Face Entry? (2006)
Working Paper: Vertical Differentiation: Multiproduct Strategy to Face Entry? (2006)
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DOI: 10.2202/1534-598X.1282

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