Price Competition in a Duopoly Characterized by Positional Effects

Evdokia Dritsa () and Eleftherios Zacharias
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Evdokia Dritsa: Department of Economics, Athens University of Economics and Business

No 12-21, Working Papers from NET Institute

Abstract: We examine the price decisions in a vertically differentiated duopoly where the decision to buy a good depends not only upon the intrinsic utility from consuming it but also upon the social attributes (prestige, uniqueness etc.) associated with its consumption. These social attributes are especially important in vertically differentiated markets. We show that when these attributes are not very strong, if their intensity increases, the profits of both firms increase. However, when these attributes are very important, if their intensity increases, the profits of the firm that offers a lower quality variant increase whereas the profits of the firm that offers the higher quality variant decrease. Our results have implications on the amount of persuasive advertising firms should conduct in such markets.

Keywords: Vertical differentiation; positional externalities, snob effect; bandwagon effect. (search for similar items in EconPapers)
JEL-codes: D11 D43 L11 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2012-10
New Economics Papers: this item is included in nep-bec, nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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