Vertical Product Differentiation and Entry Deterrence

Posted: 14 Jan 2003

See all articles by Stefan Lutz

Stefan Lutz

Lutz-Econ; HMKW University

Abstract

This paper studies how the existence of a potential entrant influences an incumbent's choice of quality in a model of vertical product differentiation and entry. Both firms face fixed set-up costs and quality-dependent costs of production and compete on quality and price. With identical quality-dependent costs, the incumbent will always deter entry if possible, i.e., if fixed costs are high. Quality will be set at a level lower than the optimal quality set if entry was accommodated. If entry is not blockaded, quality will be set at a level strictly lower than the optimal quality set under monopoly.

JEL Classification: L12, L13, L15

Suggested Citation

Lutz, Stefan and Lutz, Stefan, Vertical Product Differentiation and Entry Deterrence. Available at SSRN: https://ssrn.com/abstract=360340

Stefan Lutz (Contact Author)

HMKW University ( email )

Department of Economics
Solmsstrasse 6
Frankfurt, Hessen 60486
Germany
+4915146672069 (Phone)

HOME PAGE: http://https://www.hmkw.de/

Lutz-Econ ( email )

Ringstrasse 6
Gernsheim, Hessen 64579
Germany
+4915146672069 (Phone)

HOME PAGE: http://lutz-econ.de

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