Vertical product differentiation in the lab: impact of consumers’ preferences

Adriana Alventosa, Joana Pinho, Sílvia Ferreira Jorge and Margarida Catalão-Lopes

Applied Economics Letters, 2024, vol. 31, issue 16, 1488-1493

Abstract: We revisit a quality-then-pricing duopoly game, theoretically and experimentally exploring how heterogeneity in consumers’ preferences affects firms’ decisions and profits. We find that firms differentiate less their products in the lab than the theoretical model predicts, especially when the heterogeneity in consumers’ preferences is high. When this heterogeneity is small, the firm producing the low-quality good profits more than the rival in the lab, which contradicts the theoretical predictions.

Date: 2024
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DOI: 10.1080/13504851.2023.2198189

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