Bidimensional vertical differentiation

Paolo Garella and Luca Lambertini ()

International Journal of Industrial Organization, 2014, vol. 32, issue C, 1-10

Abstract: In markets where product quality is important, more than one characteristic is usually necessary for producers to define product quality. Standard theory maintains that: (i) in a duopoly there will be a quality leader no matter whether the product can incorporate one or two vertical attributes; (ii) differentiation pertains only to one attribute. By contrast, in our set-up, there are also equilibria where the quality leader is better in two attributes, and others where there is cross leadership, namely a situation where each firm designs a product to dominate the other in one characteristic. Applications to Minimum Quality Standards and tax (subsidy) on quality products are sketched, showing spill-over effects from one to the other quality dimension.

Keywords: Oligopoly equilibrium; Vertical differentiation; Product quality; Scope economies; Minimum Quality Standards; Taxation (search for similar items in EconPapers)
JEL-codes: L10 L13 L15 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Working Paper: Bidimensional vertical differentiation (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:32:y:2014:i:c:p:1-10

DOI: 10.1016/j.ijindorg.2013.10.007

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