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Journal of Economic Theory and Econometrics
Journal of the Korean Econometric Society
Sequential Quality and Price Competition in Hotelling Model
Vol.23, No.2, June 2012, 143–164
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Sung Hyun Kim
(Ewha Womans University)
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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.
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Keywords
Horizontal differentiation, Vertical differentiation, Entry |
JEL classification codes
D40, L10 |
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