A BEJTE Topics article.

Abstract

In this paper, we consider an incumbent firm facing potential entry in a vertical differentiation model a la Mussa and Rosen where consumers differ only by their intensity of preference for quality. We ask whether the incumbent firm has the incentive to adopt a multi-product strategy in order to face entry, in a natural duopoly case. It turns out that this strategy is never profitable and that an incumbent always prefers to produce one quality. It appears that either a cost effect or an income dispersion are necessary to urge producers to offer several products.

Submitted: January 19, 2006 · Accepted: August 8, 2006 · Published: November 1, 2006

Originally published in Topics in Theoretical Economics.

Recommended Citation

Bonnisseau, Jean-Marc and Lahmandi-Ayed, Rim (2006) "Vertical Differentiation: Multiproduct Strategy to Face Entry?," Topics in Theoretical Economics: Vol. 6 : Iss. 1, Article 15.
Available at: http://www.bepress.com/bejte/topics/vol6/iss1/art15