Firm entry, product repositioning and welfare

Eleftherios Zacharias

MPRA Paper from University Library of Munich, Germany

Abstract: We show that the entry of a second firm in a horizontally differentiated market (ala Hotelling) may harm consumers as prices increase and consumer's surplus possibly decrease. We first derive the price and the consumer's surplus of a monopoly which is located at the center of the market. When a second firm enters the market the first firm repositions and the two firms locate at their equilibrium points. Although competition adds to variety and increases consumer's surplus, the post entry increase in price may outweight the gains from extra variety and make consumers worse off.

Keywords: Horizontal differentiation; welfare analysis; product repositioning (search for similar items in EconPapers)
JEL-codes: D43 D60 L13 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-com and nep-mic
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Firm entry, product repositioning and welfare (2009)
Working Paper: Firm entry, product repositioning and welfare (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:15459

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