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Strategic and Non-strategic Differentiation

Author

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  • Esther Gal-Or

Abstract

When firms choose the characteristic of their products before output is produced, imperfectly competitive firms may use this characteristic strategically so as to reduce the output level produced by the rival. Using a simple two-stage duopoly model, the author demonstrates that such "strategic" use of the product attribute reduces the degree of differentiation between brands. As an outcome, each firm loses some market power and competition is more intense. The author demonstrates through an example that such reduced differentiation leads to reduced joint profits and reduced welfare.

Suggested Citation

  • Esther Gal-Or, 1987. "Strategic and Non-strategic Differentiation," Canadian Journal of Economics, Canadian Economics Association, vol. 20(2), pages 340-356, May.
    • Handle: RePEc:cje:issued:v:20:y:1987:i:2:p:340-56
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    Cited by:

    1. Paul Belleflamme & Valeria Forlin, 2020. "Endogenous vertical segmentation in a Cournot oligopoly," Journal of Economics, Springer, vol. 131(2), pages 181-195, October.
    2. Matt E. Thatcher & David E. Pingry, 2004. "An Economic Model of Product Quality and IT Value," Information Systems Research, INFORMS, vol. 15(3), pages 268-286, September.
    3. Hanan Alhaddi, 2014. "The Influence of Triple Bottom Line on Strategic Positioning: An Exploratory Case Study on Differentiation through Image," Journal of Management and Strategy, Journal of Management and Strategy, Sciedu Press, vol. 5(1), pages 55-72, February.
    4. Ngo Van Long & Zhuang Miao, 2020. "Multiple‐quality Cournot oligopoly and the role of market size," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(4), pages 932-952, October.

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