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Minimal Differentiation at the Top

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  • Timothy Sorenson

Abstract

Rooted in the economics of industrial organization, the principle of differentiation ranks as one of the fundamental tenets of competitive strategy. However, while differentiation may be an intuitive means of averting vigorous price competition, casual observation reveals that firms often sell similar, if not perfectly identical, product features. This paper examines the effect of (possibly tacitly) collusive pricing on product location choices in a vertical differentiation framework: when firms are able to successfully collude on price, they minimally differentiate at the top of the vertical spectrum. While firms jointly earn first-best profits, overall welfare is unambiguously lower.

Suggested Citation

  • Timothy Sorenson, 1997. "Minimal Differentiation at the Top," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 4(1), pages 5-20.
    • Handle: RePEc:taf:ijecbs:v:4:y:1997:i:1:p:5-20
    DOI: 10.1080/758532190
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
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    Cited by:

    1. Timothy Sorenson, 1999. "Product Location with Foresight," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 14(3), pages 281-292, May.
    2. Stefan Napel & Gunnar Oldehaver, 2011. "A dynamic perspective on minimum quality standards under Cournot competition," Journal of Regulatory Economics, Springer, vol. 39(1), pages 29-49, February.

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