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Strategic Vertical Differentiation and Durable Goods Monopoly

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  • Lisa N. Takeyama

Abstract

This paper considers a novel and strategic use of quality as a means for solving the durable‐goods time inconsistency problem. It demonstrates how durable‐goods producers can exploit the cannibalization of high‐quality markets by low‐quality goods. Relative to the static product line solution, this strategic dimension of quality choice implies higher quality levels of low‐end goods and the production of some low‐end products that would not otherwise be produced. In some cases, low‐end goods may rationally be sold below cost. The paper, therefore, offers a purely Coasian explanation for vertical product differentiation.

Suggested Citation

  • Lisa N. Takeyama, 2002. "Strategic Vertical Differentiation and Durable Goods Monopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 50(1), pages 43-56, March.
    • Handle: RePEc:bla:jindec:v:50:y:2002:i:1:p:43-56
    DOI: 10.1111/1467-6451.00167
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    Citations

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    Cited by:

    1. Ali K. Parlaktürk, 2012. "The Value of Product Variety When Selling to Strategic Consumers," Manufacturing & Service Operations Management, INFORMS, vol. 14(3), pages 371-385, July.
    2. Stefan Buehler & Nicolas Eschenbaum, 2021. "Dynamic Monopoly Pricing With Multiple Varieties: Trading Up," Papers 2108.07146, arXiv.org, revised Dec 2021.
    3. Beccuti, Juan & Möller, Marc, 2021. "Screening by mode of trade," Games and Economic Behavior, Elsevier, vol. 129(C), pages 400-420.
    4. Inderst, Roman, 2008. "Durable goods with quality differentiation," Economics Letters, Elsevier, vol. 100(2), pages 173-177, August.
    5. Jong‐Hee Hahn, 2006. "Damaged durable goods," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 121-133, March.
    6. Basak Altan, 2020. "Dynamic Durable Goods Monopoly and Market Power," Games, MDPI, vol. 11(2), pages 1-14, May.
    7. Laussel, Didier & Long, Ngo Van & Resende, Joana, 2020. "Quality and price personalization under customer recognition: A dynamic monopoly model with contrasting equilibria," Journal of Economic Dynamics and Control, Elsevier, vol. 114(C).
    8. Brzustowski, Thomas & Georgiadis Harris, Alkis & Szentes, Balázs, 2023. "Smart contracts and the Coase conjecture," LSE Research Online Documents on Economics 117950, London School of Economics and Political Science, LSE Library.
    9. Christophe Faugere & Giri Kumar Tayi, 2003. "Designing Free Sofware for Marketing: A Game Theoretic Approach," Game Theory and Information 0311003, University Library of Munich, Germany.
    10. Didier Laussel & Ngo Long & Joana Resende, 2022. "Asymmetric Information and Differentiated Durable Goods Monopoly: Intra-Period Versus Intertemporal Discrimination," Dynamic Games and Applications, Springer, vol. 12(2), pages 574-607, June.
    11. Jong-Hee Hahn, 2004. "Durable Goods Monopoly with Endogenous Quality," Econometric Society 2004 Far Eastern Meetings 665, Econometric Society.
    12. Gergely Csorba & Jong‐Hee Hahn, 2006. "Functional Degradation And Asymmetric Network Effects," Journal of Industrial Economics, Wiley Blackwell, vol. 54(2), pages 253-268, June.
    13. Chih-yi Chi, Woody & Wu, Shufen, 2006. "Intertemporal quality discrimination of a durable good monopolist," Economics Letters, Elsevier, vol. 92(2), pages 184-191, August.

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