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Endogenous Horizontal Product Differentiation in a Mixed Duopoly

Author

Listed:
  • Longhua Liu

    (Shandong University)

  • X. Henry Wang

    (University of Missouri)

  • Chenhang Zeng

    (Zhongnan University of Economics and Law)

Abstract

This paper studies endogenous horizontal product differentiation in a mixed duopoly. In the basic model in which firms have symmetric costs, we find that (i) product differentiation arises provided differentiation costs are sufficiently low; (ii) under Cournot competition, the welfare maximizing public firm always obtains more incentive for product differentiation, and the products are more differentiated in the mixed duopoly than in the private duopoly; and (iii) under Bertrand competition, the private firm invests in product differentiation when differentiation costs are at moderate levels while the public firm does so when differentiation costs are sufficiently low. The products may be more or less differentiated in the mixed duopoly depending on the differentiation costs. Two extensions of the basic model are also examined: one with a foreign private firm and the other with asymmetric costs.

Suggested Citation

  • Longhua Liu & X. Henry Wang & Chenhang Zeng, 2020. "Endogenous Horizontal Product Differentiation in a Mixed Duopoly," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 56(3), pages 435-462, May.
    • Handle: RePEc:kap:revind:v:56:y:2020:i:3:d:10.1007_s11151-019-09705-6
    DOI: 10.1007/s11151-019-09705-6
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    References listed on IDEAS

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    Cited by:

    1. Haraguchi, Junichi & Matsumura, Toshihiro, 2021. "Market Concentration, Privatization Policies, and Heterogeneity among Private Firms in Mixed Oligopolies," MPRA Paper 106975, University Library of Munich, Germany.
    2. Malcolm Brady, 2022. "Asymmetric Horizontal Differentiation under Advertising in a Cournot Duopoly," Games, MDPI, vol. 13(3), pages 1-14, May.
    3. James A. Brander & Barbara J. Spencer, 2022. "Differentiated Entry or “Me-Too” Entry in Bertrand and Cournot Oligopoly," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(1), pages 1-27, February.
    4. Murat Yılmaz, 2022. "Coexistence of proprietary and open‐source firms under product differentiation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 4153-4166, December.
    5. Stanislav Stoykov & Ivan Kostov, 2023. "Price Competition with Differentiated Products on a Two-Dimensional Plane: The Impact of Partial Cartel on Firms’ Profits and Behavior," Games, MDPI, vol. 14(2), pages 1-25, March.
    6. Jing Fang & Jingyi Huang & Chenhang Zeng, 2024. "Passive cross‐holdings, horizontal differentiation, and welfare," Bulletin of Economic Research, Wiley Blackwell, vol. 76(2), pages 508-528, April.
    7. Haraguchi, Junichi & Matsumura, Toshihiro, 2020. "Common Ownership among Private Firms and Privatization Policies," MPRA Paper 102152, University Library of Munich, Germany.
    8. Tai-Liang Chen & Yuxiang Zou, 2022. "Product differentiation, privatization commitment and profitability comparisons," Journal of Economics, Springer, vol. 136(1), pages 1-24, June.
    9. Xu, Lili & Matsumura, Toshihiro, 2023. "Market transparency in a mixed oligopoly," MPRA Paper 118415, University Library of Munich, Germany.
    10. Hongkun Ma & X. Henry Wang & Chenhang Zeng, 2021. "Location choice and costly product differentiation in a mixed duopoly," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 66(1), pages 137-159, February.

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    More about this item

    Keywords

    Endogenous product differentiation; Mixed duopoly; Cournot competition; Bertrand competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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