Multiproduct firm behaviour in a differentiated market

Eric Giraud-Héraud (), Abdelhakim Hammoudi and Mahdi Mokrane

Canadian Journal of Economics, 2003, vol. 36, issue 1, 41-61

Abstract: In this paper we offer a generalization of the circular model of product differentiation by introducing a multiproduct firm facing monoproduct competitors. We prove existence and explicitly characterize equilibrium when transportation costs are quadratic. We exhibit interesting equilibrium features for price policy, market shares, and profits. In equilibrium, the multiproduct firm uses its connected market shares to build asymmetric pricing schemes that allow a fraction of its product line (brands, stores or firms) to be shielded from outside competition and hence extracts maximum consumer surplus. Our results shed some light on the link between product differentiation and mergers and acquisitions activity (M&As).

JEL-codes: D21 L11 L13 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (27)

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