Price Responses to Market Entry With and Without Endogenous Product Choice

Helge Sanner

No 81, Volkswirtschaftliche Diskussionsbeiträge from Universität Potsdam, Wirtschafts- und Sozialwissenschaftliche Fakultät

Abstract: Textbook wisdom says that competition yields lower prices and higher consumer surplus than monopoly. We show in two versions of a simple location-product differentiation model with and without endogenous choice of products that these two results have to be qualified. In both models, more than half of the reasonable parameter values lead to higher prices with duopoly than with monopoly. If the product characteristics are exogenous to the firms, consumers may even be be better off with monopoly in average.

Keywords: Product differentiation; Hotelling; Price and Welfare Effects of Market Entry (search for similar items in EconPapers)
JEL-codes: D43 L12 L13 L41 (search for similar items in EconPapers)
Date: 2005-11
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:pot:vwldis:81

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