Are Markets More Competitive if Commodities Are Closer Substitutes?

Norbert Schulz

International Economic Review, 1995, vol. 36, issue 4, 963-83

Abstract: Equilibrium prices of the variants of a differentiated commodity are shown to increase, if the variants become closer substitutes, under a set of circumstances which is by no means pathological. Rather, the underlying argument has a bearing on market prices, whenever a potential buyer does not know with certainty the characteristics of the variants which are for sale before inspecting them and, therefore, has to incur some information costs before the final purchase decision. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1995
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