Vertical Differentiation and Collusion: Cannibalization or Proliferation?

In this paper, we tackle the dilemma of pruning versus proliferation in a vertically differentiated oligopoly under the assumption that some firms collude and control both the range of variants for sale and their corresponding prices, likewise a multiproduct firm. We analyse whether pruning emerges and, if so, a fighting brand is marketed. We find that it is always more profitable for colluding firms to adopt a pricing strategy such that some variants are withdrawn from the market. Under pruning, these firms commercialize a fighting brand only when facing competitors in a low-end market. The same findings do not hold when firms are horizontally differentiated along a circle.


Subject(s):
Issue Date:
Mar 01 2016
Publication Type:
Working or Discussion Paper
DOI and Other Identifiers:
Record Identifier:
https://ageconsearch.umn.edu/record/232221
PURL Identifier:
http://purl.umn.edu/232221
Total Pages:
22
JEL Codes:
D42; D43; L1; L12; L13; L41
Series Statement:
ET
15.2016




 Record created 2017-04-01, last modified 2019-08-30

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