Title: Cannibalization may Allow a Cost-ine¢ cient Firm to Earn more than a Cost-e¢ cient Firm in a Duopoly with Two Vertically Dierentiated Goods
Abstract:We consider cannibalization in a duopoly model in which …rms with dierent costs supply two vertically dierentiated products in the same market. We …nd that an increase in the dierence in quality betwe...We consider cannibalization in a duopoly model in which …rms with dierent costs supply two vertically dierentiated products in the same market. We …nd that an increase in the dierence in quality between the two goods or a decrease in the marginal cost of the high-quality goods leads to cannibalization, such that the high-quality goods keep out the low-quality goods from the market. We show that, in equilibrium, cannibalization aects the product line of …rms. As a result, an ine¢ cient …rm may earn more than the e¢ cient …rm. If the dierence in the quality of the two goods is small enough, an increase in the production costs of the ine¢ cient …rm improves social welfare.Read More
Publication Year: 2014
Publication Date: 2014-01-01
Language: en
Type: preprint
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Cited By Count: 2
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