Product Differentiation in a Vertical Structure

Han, Tien-Der; Haque, M Emranul; Mukherjee, Arijit

Abstract

We consider final goods producers' preference for horizontal product differentiation in the presence of strategic input price determination. Final goods producers may not prefer maximal differentiation but may prefer moderate differentiation under both Cournot and Bertrand competition in the final goods market if product differentiation does not increase the market size significantly and there is either free entry in the input market or the input supplier has increasing returns to scale technology. Thus, we provide a new rationale for moderate product differentiation. Our reasons are different from the existing reasons of mixed pricing strategy, endogenous leadership, no-buy option for the consumers and the relative performance incentive schemes.

Citation

Han, T.-D., Haque, M. E., & Mukherjee, A. (2022). Product Differentiation in a Vertical Structure. BE Journal of Theoretical Economics, 22(1), 105-122. https://doi.org/10.1515/bejte-2020-0037

• Journal Article Type: Article
• Acceptance Date: Sep 27, 2020
• Online Publication Date: Nov 16, 2020
• Publication Date: 2022-01
• Deposit Date: Sep 28, 2020
• Publicly Available Date: Nov 17, 2021
• Journal: The B.E. Journal of Theoretical Economics
• Electronic ISSN: 1935-1704
• Publisher: De Gruyter
• Peer Reviewed: Peer Reviewed
• Volume: 22
• Issue: 1
• Pages: 105-122
• DOI: https://doi.org/10.1515/bejte-2020-0037
• Keywords: Entry; Final goods; Increasing returns; Input; Product differentiation
• Public URL: https://nottingham-repository.worktribe.com/output/4932238
• Publisher URL: https://www.degruyter.com/view/journals/bejte/ahead-of-print/article-10.1515-bejte-2020-0037/article-10.1515-bejte-2020-0037.xml