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Vertical differentiation beyond the uniform distribution

Corrado Benassi (), Alessandra Chirco () and Caterina Colombo ()
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Corrado Benassi: Alma Mater Studiorum - Università di Bologna
Caterina Colombo: Università degli Studi di Ferrara

Journal of Economics, 2019, vol. 126, issue 3, 221-248

Abstract: Abstract The assessment of the way distributive shocks, such as increased polarization or higher inequality, affect vertically differentiated markets has been severely hampered by the standard reference to uniform distributions. In this paper we offer the first proof of existence of a subgame perfect Nash equilibrium in a vertically differentiated duopoly with uncovered market, for a large set of symmetric and asymmetric distributions of consumers, including, among others, all logconcave distributions. The proof relies on the ‘income share elasticity’ representation of the consumers’ density function. Some illustrative examples are also provided to assess the impact of distributive shocks on market equilibrium.

Keywords: Vertical differentiation; Duopoly; Non-uniform distribution; Subgame perfect equilibrium; Income share elasticity (search for similar items in EconPapers)
JEL-codes: L13 L11 D43 C72 (search for similar items in EconPapers)
Date: 2019
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