Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society
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Journal of Economic Theory and Econometrics
Journal of the Korean Econometric Society

• #### Sung Hyun Kim   (Ewha Womans University)

Abstract

We allow sellers in Hotelling model to choose quality'' (referring to the gross surplus of product) before choosing prices and examine welfare implications of introducing a horizontally differentiated product into a monopoly market. Under certain parameter assumptions, we show that entry results in lower prices, lower qualities, (typically) lower consumers' surplus and lower social welfare. Our findings suggest that we should not regard the number of sellers in a differentiated market to be a simple measure of competitiveness.

Keywords
Horizontal differentiation, Vertical differentiation, Entry

JEL classification codes
D40, L10