Market configurations when marginal costs are quality-dependent

Cesaltina Pacheco Pires, Sílvia Ferreira Jorge, Margarida Catalão-Lopes*, Joana Pinho, Pedro Garcês, Adriana Alventosa

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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Abstract

Most quality-then-price decision models under vertical product differentiation consider a predetermined market configuration. We endogenize market configuration considering quality-dependent marginal costs and conclude that a strictly interior full coverage duopoly holds for some parameter values, unveiling the relevance of this commonly assumed market structure. Moreover, we show that a monopoly never arises in equilibrium, and (i) there are multiple equilibria at the frontier between interior and corner full coverage duopoly, (ii) the market is fully (partially) covered when relative tastes' heterogeneity is low (high), and (iii) there is a discontinuity in the transition from partial coverage to full coverage duopoly.
Original languageEnglish
Pages (from-to)3972-3992
Number of pages21
JournalManagerial and Decision Economics
Volume45
Issue number6
DOIs
Publication statusPublished - Sept 2024

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