First-Degree Discrimination by a Duopoly: Pricing and Quality Choice

David Encaoua () and Abraham Hollander
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Abraham Hollander: UdeM - Université de Montréal

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Abstract: The paper examines under what conditions vertically differentiated duopolists engage in first-degree price discrimination. Each firm decides on a pricing regime at a first stage and sets prices at a second stage. The paper shows that when unit cost is an increasing and convex function of quality, the discriminatory regime is the unique subgame-perfect equilibrium of such two-stage game. In contrast to the case of horizontal differentiation, the discriminatory equilibrium is not necessarily Pareto-dominated by a bilateral commitment to uniform pricing. Also, the quality choices of perfectly discriminating duopolists are welfare maximizing. The paper explains why a threat of entry may elicit price discrimination by an incumbent monopolist.

Keywords: competition in pricing regimes; duopoly; quality choice; concurrence en régime de prix; duopole; choix de qualité (search for similar items in EconPapers)
Date: 2007-01
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00177604
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Citations: View citations in EconPapers (9)

Published in The Berkeley Electronic Journal of Theoretical Economics, 2007, 7 (1), pp.Article 14

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Related works:
Journal Article: First-Degree Discrimination by a Duopoly: Pricing and Quality Choice (2007)
Working Paper: First-Degree Discrimination by a Duopoly: Pricing and Quality Choice (2007)
Working Paper: First-Degree Discrimination by a Duopoly: Pricing and Quality Choice (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00177604

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