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The Diffusion of Consumer Durables in a Vertically Differentiated Oligopoly

Posted: 1 Oct 1998  

Raymond J. Deneckere

University of Wisconsin - Madison - Department of Economics

Andre de Palma

University of Cergy-Pontoise - Department of Economics

Abstract

In a vertically differentiated durable goods duopoly, prices tend to decline over time because the high-quality manufacturer's future product may compete more directly with the other firm's present product than with its own. This removes the standard reason not to cut prices (Stokey, 1979). Price levels depend not only on the similarity of the two products, but also on how readily the low-quality manufacturer's customers abstain from purchasing in order to obtain the high-quality good at a reduced price in the future. When quality choice is endogenized, substantially less vertical differentiation arises than would occur for nondurables.

JEL Classification: L13

Suggested Citation

Deneckere, Raymond J. and de Palma, Andre, The Diffusion of Consumer Durables in a Vertically Differentiated Oligopoly. Rand Journal of Economics, Vol. 29, No. 4, Winter 1998. Available at SSRN: https://ssrn.com/abstract=109868

Raymond Deneckere (Contact Author)

University of Wisconsin - Madison - Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706
United States
608-263-6724 (Phone)
608-263-3876 (Fax)

Andre De Palma

University of Cergy-Pontoise - Department of Economics ( email )

Site des Chênes 1
33 boulevard du Port
Cergy-Pontoise, Cédex F-95011
France
33 1 34 25 61 81 (Phone)
33 1 34 25 62 33 (Fax)

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