Vertical product differentiation in the lab: impact of consumers’ preferences

Adriana Alventosa; Joana Pinho; Sílvia Ferreira Jorge; Margarida Catalão-Lopes

doi:10.1080/13504851.2023.2198189

Vertical product differentiation in the lab: impact of consumers’ preferences

Adriana Alventosa^*, Joana Pinho, Sílvia Ferreira Jorge, Margarida Catalão-Lopes

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

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Abstract

We revisit a quality-then-pricing duopoly game, theoretically and experimentally exploring how heterogeneity in consumers’ preferences affects firms’ decisions and profits. We find that firms differentiate less their products in the lab than the theoretical model predicts, especially when the heterogeneity in consumers’ preferences is high. When this heterogeneity is small, the firm producing the low-quality good profits more than the rival in the lab, which contradicts the theoretical predictions.

Original language	English
Pages (from-to)	1488-1493
Number of pages	6
Journal	Applied Economics Letters
Volume	31
Issue number	16
DOIs	https://doi.org/10.1080/13504851.2023.2198189
Publication status	Published - 2024

Keywords

Vertical product differentiation
Consumers’ preferences heterogeneity
Experimental economics

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10.1080/13504851.2023.2198189

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abstract = "We revisit a quality-then-pricing duopoly game, theoretically and experimentally exploring how heterogeneity in consumers{\textquoteright} preferences affects firms{\textquoteright} decisions and profits. We find that firms differentiate less their products in the lab than the theoretical model predicts, especially when the heterogeneity in consumers{\textquoteright} preferences is high. When this heterogeneity is small, the firm producing the low-quality good profits more than the rival in the lab, which contradicts the theoretical predictions.",

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author = "Adriana Alventosa and Joana Pinho and Jorge, {S{\'i}lvia Ferreira} and Margarida Catal{\~a}o-Lopes",

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AU - Catalão-Lopes, Margarida

PY - 2024

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N2 - We revisit a quality-then-pricing duopoly game, theoretically and experimentally exploring how heterogeneity in consumers’ preferences affects firms’ decisions and profits. We find that firms differentiate less their products in the lab than the theoretical model predicts, especially when the heterogeneity in consumers’ preferences is high. When this heterogeneity is small, the firm producing the low-quality good profits more than the rival in the lab, which contradicts the theoretical predictions.

AB - We revisit a quality-then-pricing duopoly game, theoretically and experimentally exploring how heterogeneity in consumers’ preferences affects firms’ decisions and profits. We find that firms differentiate less their products in the lab than the theoretical model predicts, especially when the heterogeneity in consumers’ preferences is high. When this heterogeneity is small, the firm producing the low-quality good profits more than the rival in the lab, which contradicts the theoretical predictions.

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KW - Consumers’ preferences heterogeneity

KW - Experimental economics

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DO - 10.1080/13504851.2023.2198189

M3 - Article

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Vertical product differentiation in the lab: impact of consumers’ preferences

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Keywords

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