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Credence, goods and product differentiation

Author

Listed:
  • GABSZEWICZ, Jean J.

    (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

  • RESENDE, Joana

    (CEF.UP, University of Porto)

Abstract

This paper analyses price competition between two firms producing horizontally and vertically differentiated goods. These are assumed to be credence goods, as consumers can hardly ascertain the quality of the commodities. We provide sufficient conditions for the existence of a unique price equilibrium and we characterize it. To illustrate the model, we adapt it to represent a newspapers' industry with two outlets, when the population of readers have preferences both on the political stance of the newspapers and on the accuracy of news they dispatch.

Suggested Citation

  • GABSZEWICZ, Jean J. & RESENDE, Joana, 2011. "Credence, goods and product differentiation," LIDAM Discussion Papers CORE 2011048, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2011048
    as

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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp2011.html
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    References listed on IDEAS

    as
    1. Jean J. Gabszewicz & Isabel Grilo, 1992. "Price Competition When Consumersare Uncertain About Which Firm Sells Which Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 629-650, December.
    2. Irmen, Andreas & Thisse, Jacques-Francois, 1998. "Competition in Multi-characteristics Spaces: Hotelling Was Almost Right," Journal of Economic Theory, Elsevier, vol. 78(1), pages 76-102, January.
    3. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Imperfect competition and quality signalling," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 163-183, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    credence goods; horizontal differentiation; vertical differentiation; newspaper industry;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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