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Product Differentiation and Price Competition Between a Safe and a Risky Seller


Winand Emons


University of Bern - Department of Economics; Centre for Economic Policy Research (CEPR)

October 1998

Univ. of Bern Dept. of Economics Disc. Paper No. 98-07

Abstract:     
We consider a market served by a safe and a risky seller. While the expensive safe seller can solve the problems of all consumers, the cheap risky seller can help a consumer only with a certain probability. The risky seller's success probabilities are distributed across consumers, and by the choice of her quality the risky seller determines the shape of this distribution. If the risky seller fails, a consumer ends up with the safe seller, paying for the service twice. We study the price-quality competition between the two providers. We show that the principle of maximum product differentiation does not hold in our model, i.e., the risky seller does not choose the minimum quality level in order to relax price competition.

Number of Pages in PDF File: 24

JEL Classification: D43, L13, L15

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Date posted: January 28, 1999  

Suggested Citation

Emons, Winand, Product Differentiation and Price Competition Between a Safe and a Risky Seller (October 1998). Univ. of Bern Dept. of Economics Disc. Paper No. 98-07. Available at SSRN: http://ssrn.com/abstract=138508 or http://dx.doi.org/10.2139/ssrn.138508

Contact Information

Winand Emons (Contact Author)
University of Bern - Department of Economics ( email )
Schanzeneckstrasse 1
Postfach 8573
CH-3001 Bern
Switzerland
+41 31 631 3922 (Phone)
+41 31 631 3783 (Fax)
HOME PAGE: http://staff.vwi.unibe.ch/emons
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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