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Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

Sequential Quality and Price Competition in Hotelling Model

Vol.23, No.2, June , 143–164



  •   (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.


Keywords
   Horizontal differentiation, Vertical differentiation, Entry

JEL classification codes
   D40, L10
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