Product Differentiation and Endogenous Mode of Competition

IGIER Working Paper No. 134

18 Pages Posted: 12 Jan 1999

See all articles by Michele Polo

Michele Polo

Bocconi University - Department of Economics

Massimo Motta

Universitat Pompeu Fabra

Date Written: September 1998

Abstract

There exists a continuum of prices between Bertrand and joint-profit maximization prices which can be interpreted as the outcome of a two-stage game where firms first invest to increase product differentiation and then compete in prices. The lower the costs of differentiating their products from each other the more relaxed competition is in the product market and the closer firms will be to the collusive outcome of the one-shot game for a given degree of differentiation. The higher the costs the harsher the competition in the market and the closer to the Bertrand solution of the one-shot game with a given degree of differentiation.

JEL Classification: L10

Suggested Citation

Polo, Michele and Motta, Massimo, Product Differentiation and Endogenous Mode of Competition (September 1998). IGIER Working Paper No. 134. Available at SSRN: https://ssrn.com/abstract=130903 or http://dx.doi.org/10.2139/ssrn.130903

Michele Polo (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Massimo Motta

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

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