Strategic Vertical Differentiation and Durable Goods Monopoly

14 Pages Posted: 13 Dec 2002

See all articles by Lisa N. Takeyama

Lisa N. Takeyama

San Francisco State University - Department of Economics

Abstract

This paper considers a novel and strategic use of quality as a means for solving the durable-goods time inconsistency problem. It demonstrates how durable-goods producers can exploit the cannibalization of high-quality markets by low-quality goods. Relative to the static product line solution, this strategic dimension of quality choice implies higher quality levels of low-end goods and the production of some low-end products that would not otherwise be produced. In some cases, low-end goods may rationally be sold below cost. The paper, therefore, offers a purely Coasian explanation for vertical product differentiation.

Suggested Citation

Takeyama, Lisa N., Strategic Vertical Differentiation and Durable Goods Monopoly. Journal of Industrial Economics, Vol. 50, pp. 43-56, 2002. Available at SSRN: https://ssrn.com/abstract=309195

Lisa N. Takeyama (Contact Author)

San Francisco State University - Department of Economics ( email )

San Francisco, CA
United States
415-338-2499 (Phone)

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