Vertical Product Differentiation in the Lab: Impact of Consumers’ Preferences Dispersion

10 Pages Posted: 4 Oct 2022 Last revised: 6 Dec 2022

See all articles by Adriana Alventosa

Adriana Alventosa

Faculty of Economics. University of Valencia

Joana Pinho

Catholic University of Portugal (UCP) - Católica Porto Business School

Sílvia Jorge

GOVCOPP, DEGEIT, Universidade de Aveiro

Margarida Catalão‐Lopes

CEG-IST, Instituto Superior Técnico, Universidade de Lisboa

Date Written: October 2, 2022

Abstract

This paper revisits a vertically differentiated duopoly game where producers first simultaneously set qualities and then simultaneously set prices. We theoretically and experimentally explore the impact of different consumers’ preferences dispersion levels. We find that firms suboptimally differentiate their products, specially when consumers’ preferences dispersion is high and that, in both cases and in contrast with our theoretical prediction, there is a low-quality firm advantage.

Keywords: vertical product differentiation, consumers’ preferences dispersion, experimental economics

JEL Classification: D43, D21, L22, C92

Suggested Citation

Alventosa, Adriana and Pinho, Joana and Jorge, Sílvia and Catalão‐Lopes, Margarida, Vertical Product Differentiation in the Lab: Impact of Consumers’ Preferences Dispersion (October 2, 2022). Available at SSRN: https://ssrn.com/abstract=4235542 or http://dx.doi.org/10.2139/ssrn.4235542

Adriana Alventosa (Contact Author)

Faculty of Economics. University of Valencia ( email )

Avda Tarongers s/n 46071
Valencia, Valencia 46023
Spain

Joana Pinho

Catholic University of Portugal (UCP) - Católica Porto Business School ( email )

Rua de Diogo Botelho 1327
Porto, Porto 4169-005
Portugal

Sílvia Jorge

GOVCOPP, DEGEIT, Universidade de Aveiro ( email )

Portugal

Margarida Catalão‐Lopes

CEG-IST, Instituto Superior Técnico, Universidade de Lisboa ( email )

Av. Rovisco Pais 1, 1049-001
Lisbon
Portugal

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