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Production Substitution of Goods Within and Between Firms in a Multiproduct Duopoly

Tetsuya Shinkai () and Ryoma Kitamura ()
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Ryoma Kitamura: Faculty of Economics, Otemon Gakuin University

No 197, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: We consider the product line strategies of duopolistic firms, each of which can supply two vertically-differentiated products under nonnegative output constraints and expectations of their rival's product line reaction. Considering a game of firms with heterogeneous (homogeneous) unit costs for high- (low-) quality products, we derive the equilibria for the game and conduct comparative statics of the equilibria outcomes on the relative superiority of the high-quality product and relative cost efficiency. In two of the equilibria, we find that where the cost-inefficient firm supplies a high-quality good, social welfare can worsen as its unit cost decreases. We also characterize the result using the production substitution of differentiated goods within a firm and the high-quality good between firms. Further, by comparing social welfare in the first-best equilibria with those in the Cournot duopoly equilibria, we find that the social welfare of the market worsens in the multiproduct Cournot duopoly equilibria as the relative superiority of the high-quality good increases.

Keywords: Multiproduct firm; Duopoly; Production substitution; Vertical product differentiation (search for similar items in EconPapers)
JEL-codes: D21 D43 L13 L15 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2019-09
New Economics Papers: this item is included in nep-bec, nep-com, nep-gth, nep-mic and nep-ore
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