Product Differentiation with Multiple Qualities

Quaderni - Working Paper DSE N° 1075

45 Pages Posted: 3 Sep 2016

See all articles by Francesca Barigozzi

Francesca Barigozzi

University of Bologna - Department of Economics

Ching-to Albert Ma

Boston University - Department of Economics

Date Written: August 30, 2016

Abstract

We study subgame-perfect equilibria of the classical quality-price, multistage game of vertical product differentiation. Each firm can choose the levels of an arbitrary number of qualities. Consumers’ valuations are drawn from independent and general distributions. The unit cost of production is increasing and convex in qualities. We characterize equilibrium prices, and the equilibrium effects of qualities on the rival’s price in the general model. We present necessary and sufficient conditions for equilibrium differentiation in any of the qualities.

Keywords: multidimensional product differentiation, quality and price competition

JEL Classification: D43, L13

Suggested Citation

Barigozzi, Francesca and Ma, Ching-To Albert, Product Differentiation with Multiple Qualities (August 30, 2016). Quaderni - Working Paper DSE N° 1075, Available at SSRN: https://ssrn.com/abstract=2833305 or http://dx.doi.org/10.2139/ssrn.2833305

Francesca Barigozzi (Contact Author)

University of Bologna - Department of Economics ( email )

P.zza Scaravilli 2
40126 Bologna, 40126
Italy

Ching-To Albert Ma

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-4010 (Phone)
617-353-4449 (Fax)

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