Product Differentiation in Successive Vertical Oligopolies

U of London Queen Mary Economics Working Paper No. 421

32 Pages Posted: 22 Nov 2000

See all articles by Paul Belleflamme

Paul Belleflamme

CORE and Louvain School of Management, UCL (Université Catholique de Louvain); CESifo (Center for Economic Studies and Ifo Institute)

Eric Toulemonde

IZA Institute of Labor Economics; Facultés Universitaires Notre-Dame de la Paix (FUNDP) - Faculty of Economics, Management and Social Sciences

Date Written: October 25, 2000

Abstract

This is a successive oligopoly model with two brands. Each downstream firm chooses one brand to sell on a final market. The upstream firms specialize in the production of one input specifically designed for the production of one brand, but they also produce the input for the other brand at an extra cost. We show that when more downstream firms choose one brand, more upstream firms will specialize in the input specific to that brand, and vice versa. Hence, multiple equilibria are possible and the softening effect of brand differentiation on competition might not be strong enough to induce maximal differentiation. The existence of equilibria and their welfare performance are also examined.

Keywords: product differentiation, vertical relationships, oligopoly

JEL Classification: L11, L13, L23

Suggested Citation

Belleflamme, Paul and Toulemonde, Eric, Product Differentiation in Successive Vertical Oligopolies (October 25, 2000). U of London Queen Mary Economics Working Paper No. 421. Available at SSRN: https://ssrn.com/abstract=248430 or http://dx.doi.org/10.2139/ssrn.248430

Paul Belleflamme (Contact Author)

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Eric Toulemonde

IZA Institute of Labor Economics ( email )

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