Ambiguous consumer tastes and product differentiation

Olivier Kayser

No 2023-20, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: Considering that firms have multiple consumer taste distributions, we introduce in the vertical differentiation framework an ambiguous demand in a duopoly. We investigate the effects of ambiguity aversion on product differentiation and pricing choices. By specifying these distributions by Heaviside functions we obtain results on the existence and form of several Subgame-Perfect Nash Candidate Equilibria. The associated equilibrium prices are decreasing with ambiguity aversion. Under the market coverage assumption, we show that the level of differentiation is always maximal whatever the degree of ambiguity aversion. Finally, we study which of the Subgame-Perfect Nash Candidate Equilibria is the solution of the game depending on the width of the taste distributions and the degree of ambiguity aversion.

Keywords: Vertical differentiation; Ambiguous consumer tastes; Ambiguous demand; Ambiguity aversion (search for similar items in EconPapers)
JEL-codes: C72 D43 D8 L13 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2023
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind, nep-mic and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2023-20

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