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A Note on Vertical Differentiation of Durable Goods: Sellers, Renters and Moral Hazard

George Geronikolaou

Journal of Industry, Competition and Trade, 2018, vol. 18, issue 1, 97-106

Abstract: Abstract This paper examines strategic interaction between firms that differentiate their goods with respect to durability and compete in prices. Two separate cases in which competing firms are either renters or sellers are examined. Although sellers face a dynamic consistency problem and pricing equilibria in the two cases are different, profits and consumer surpluses are identical within the two games. The introduction of moral hazard in the rental market creates an interesting complication because it increases equilibrium rental prices and has a profit enhancing effect for the low-durability renter.

Keywords: Vertical differentiation; Durable goods; Bertrand competition; Oligopoly; Moral hazard; L11; L13; L15 (search for similar items in EconPapers)
Date: 2018
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