Price Equilibrium and Willingness to Pay in a Vertically Differentiated Mixed Duopoly

Quaderni - Working Paper DSE N° 1012

27 Pages Posted: 18 Jul 2015 Last revised: 26 May 2016

See all articles by Corrado Benassi

Corrado Benassi

University of Bologna

Massimiliano Castellani

Department of Statistics

Maurizio Mussoni

University of Bologna - Department of Economics; The Rimini Centre for Economic Analysis (RCEA)

Date Written: June 11, 2015

Abstract

In the framework of a vertically differentiated mixed duopoly, with uncovered market and costless quality choice, we study the existence of a price equilibrium when a welfare-maximizing public firm producing low quality goods competes against a profit-maximizing private firm producing high quality goods. We show that a price equilibrium exists if the quality spectrum is wide enough vis à vis a measure of the convexity of the distribution of the consumers' willingness to pay, and that such equilibrium is unique if this sufficient condition is tightened. Log-concavity of the income distribution is inconsistent with the existence of equilibrium.

Keywords: price equilibrium, vertical differentiation

JEL Classification: D43, L13, L51

Suggested Citation

Benassi, Corrado and Castellani, Massimiliano and Mussoni, Maurizio, Price Equilibrium and Willingness to Pay in a Vertically Differentiated Mixed Duopoly (June 11, 2015). Quaderni - Working Paper DSE N° 1012, Available at SSRN: https://ssrn.com/abstract=2617292 or http://dx.doi.org/10.2139/ssrn.2617292

Corrado Benassi

University of Bologna ( email )

Department of Economics
Piazza Scaravilli 2
40126 Bologna
Italy

Massimiliano Castellani (Contact Author)

Department of Statistics ( email )

piazza teatini 10
rimini, 47921
Italy

Maurizio Mussoni

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, BO 40125
Italy

HOME PAGE: http://www2.dse.unibo.it/dsa/profile.php?id=232

The Rimini Centre for Economic Analysis (RCEA) ( email )

Via Patara, 3
Rimini, RN 47921
Italy

HOME PAGE: http://www.rcfea.org

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