Title: Cannibalization within the Single Vertically Di¤erentiated Duopoly
Abstract:We consider cannibalization in a duopoly model in which rms with di¤erent costs supply two vertically di¤erentiated products in the same market. We nd that an increase in the di¤erence in quality betw...We consider cannibalization in a duopoly model in which rms with di¤erent costs supply two vertically di¤erentiated products in the same market. We nd that an increase in the di¤erence in quality between the two goods or a decrease in the marginal cost of the high-quality goods leads to cannibalization. As a result, these goods keep low-quality goods from the market. Then, as the di¤erence in quality between the two goods increases from a su¢ ciently small to a su¢ ciently large level, we nd that 1) cannibalization from the low-quality good to the high- quality good of the e¢ cient rm expands, 2) cannibalization from the high-quality good to the low-quality good of the ine¢ cient rm shrinks. Further, we establish that 3) an increase in the production costs of the ine¢ cient rm improves social welfare when the di¤erence in quality between the two goods is su¢ ciently small.Read More
Publication Year: 2014
Publication Date: 2014-12-01
Language: en
Type: preprint
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