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Markets with Technological Progress: Pricing Quality, and Novelty

Ludwig von Auer and Mark Trede ()

No 3014, CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster

Abstract: New and old products differ in two respects: quality and newness. Whereas a higher quality of a new product always benefits consumers, the newness itself benefits some consumers, but not others, and for some, it is even a disadvantage. We capture these features in a Hotelling model of OverLapping Innovators (HOLI model), entailing a sequence of static Hotelling games of horizontal product dirrerentiation (newness), that we extend by vertical product differentiation (quality). In this model, the firms compete on quality and price. Using advanced dynamic hedonic regression methods, we empirically investigate the pricing policy of firms in the German laser printer market. We show that their pricing corresponds to our model with the entrant acting as the Stackelberg follower.

Keywords: Hotelling; vertical product differentiation; hedonic regression; Stackelberg; laser printer (search for similar items in EconPapers)
JEL-codes: L11 L63 C23 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2014-03
New Economics Papers: this item is included in nep-com, nep-ind and nep-mkt
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Related works:
Journal Article: Markets with technological progress: pricing, quality, and novelty (2018) Downloads
Working Paper: Markets with Technological Progress: Pricing, Quality, and Novelty (2014) Downloads
Working Paper: Markets with Technological Progress: Pricing, Quality and Novelty (2014) Downloads
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