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The B.E. Journal of Theoretical Economics

Editor-in-Chief: Schipper, Burkhard

Ed. by Fong, Yuk-fai / Peeters, Ronald / Puzzello , Daniela / Rivas, Javier / Wenzelburger, Jan

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Vertical Differentiation: Multiproduct Strategy to Face Entry?

Jean-Marc Bonnisseau / Rim Lahmandi-Ayed
Published Online: 2006-11-01 | DOI: https://doi.org/10.2202/1534-598X.1282

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.

Keywords: vertical differentiation; multiproduct strategy; entry

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Published Online: 2006-11-01

Citation Information: Topics in Theoretical Economics, Volume 6, Issue 1, Pages 1–14, ISSN (Online) 1534-598X, DOI: https://doi.org/10.2202/1534-598X.1282.

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