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Corporate cannibalism in an oligopolistic market

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  • Xingtang Wang
  • Leonard F. S. Wang

Abstract

In this paper, we consider whether a firm that produces high‐quality products chooses to produce lower‐quality products. We find that when there is only one monopoly in the market, the monopoly will only produce a single‐quality product. When there are two firms in the market, one produces high‐quality products and the other one produces low‐quality products. When certain conditions are met, the firm that produces high‐quality products has an incentive to produce products of medium or lower quality, thus profiting. The production of new products by a firm will bring about the improvement of consumer surplus and social welfare.

Suggested Citation

  • Xingtang Wang & Leonard F. S. Wang, 2022. "Corporate cannibalism in an oligopolistic market," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(3), pages 402-417, September.
    • Handle: RePEc:bla:ijethy:v:18:y:2022:i:3:p:402-417
    DOI: 10.1111/ijet.12311
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    References listed on IDEAS

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    8. Preyas S. Desai, 2001. "Quality Segmentation in Spatial Markets: When Does Cannibalization Affect Product Line Design?," Marketing Science, INFORMS, vol. 20(3), pages 265-283, August.
    9. Birger Wernerfelt, 1988. "Umbrella Branding as a Signal of New Product Quality: An Example of Signalling by Posting a Bond," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 458-466, Autumn.
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    Cited by:

    1. Xingtang Wang & Leonard F. S. Wang, 2023. "Vertical shareholding, vertical product differentiation and social welfare," Metroeconomica, Wiley Blackwell, vol. 74(3), pages 478-494, July.
    2. Xingtang Wang & Leonard F. S. Wang & Huizhong Liu, 2024. "Cross-ownership and managerial delegation under vertical product differentiation," Journal of Economics, Springer, vol. 143(2), pages 161-181, October.

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