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Product differentiation in successive vertical oligopolies

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  • BELLEFLAMME, Paul
  • TOULEMONDE, Eric

Abstract

. This is a successive oligopoly model with two varieties of a final product. Downstream firms choose one variety to sell on a final market. Upstream firms specialize in the production of one input specifically designed for one variety, but they also produce the input for the other variety at an extra cost. We show that as more downstream firms choose one particular variety, more upstream firms specialize in the input specific to that variety, and vice‐versa. Multiple equilibria may result, and the softening effect of product differentiation on competition might not be strong enough to induce maximal differentiation. JEL Classification: L11, L13, L23 Différenciation des produits dans des oligopoles verticaux successifs. On examine un modèle d’oligopole successif dans lequel il y a deux variétés de produit final. Les entreprises en aval choisissent une variété pour l’écouler dans un marché final. Les entreprises en amont se spécialisent dans la production d’un intrant défini spécifiquement pour la production d’une variété, mais elles produisent aussi l’intrant spécifiquement défini pour l’autre variétéà un coût additionnel. On montre que davantage de firmes en amont se spécialisent dans la production de l’intrant spécifique à une variété lorsque davantage de firmes en aval choîsissent cette variété. De multiples équilibres peuvent exister, et l’effet adoucissant de la différenciation des produits sur la concurrence peut ne pas être suffisamment puissant pour engendrer une différenciation maximale.
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Suggested Citation

  • BELLEFLAMME, Paul & TOULEMONDE, Eric, 2003. "Product differentiation in successive vertical oligopolies," LIDAM Reprints CORE 1720, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:1720
    DOI: 10.1111/1540-5982.t01-2-00001
    Note: In : Canadian Journal of Economic/Revue canadienne d'Economique, 36(3), 523-545, 2003
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    Cited by:

    1. Zanchettin, Piercarlo & Mukherjee, Arijit, 2017. "Vertical integration and product differentiation," International Journal of Industrial Organization, Elsevier, vol. 55(C), pages 25-57.
    2. Erkal, Nisvan, 2007. "Buyer-supplier interaction, asset specificity, and product choice," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 988-1010, October.
    3. José Pedro Pontes, 2004. "Agglomeration in a Vertically-linked Oligopoly," Working Papers Department of Economics 2004/06, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    4. Emanuele Bacchiega & Olivier Bonroy, 2015. "On the benefits of contractual inefficiency in quality-differentiated markets," Oxford Economic Papers, Oxford University Press, vol. 67(3), pages 846-863.
    5. Noriaki Matsushima, 2009. "Vertical Mergers And Product Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 57(4), pages 812-834, December.
    6. Matsushima, Noriaki, 2004. "Technology of upstream firms and equilibrium product differentiation," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1091-1114, November.
    7. José Pontes, 2007. "Networks and firm location," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 41(4), pages 897-909, December.
    8. Vermeulen, B. & Huisman, K.J.M. & Kok, A.G. de, 2015. "Vertical governance change and product differentiation under decreasing component costs," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 65-76.
    9. E. Bacchiega & O. Bonroy, 2012. "Vertical relations and number of channels in quality-differentiated markets," Working Papers wp823, Dipartimento Scienze Economiche, Universita' di Bologna.
    10. André Rocha & José Pedro Pontes, 2005. "Spatial Cournot Oligopoly with Vertical Linkages," Working Papers Department of Economics 2005/11, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    11. Noriaki Matsushima & Tomomichi Mizuno, 2009. "Input specificity and product differentiation," ISER Discussion Paper 0745, Institute of Social and Economic Research, Osaka University.
    12. Jose Pedro Pontes, 2005. "Input Specificity and Location," Working Papers Department of Economics 2005/01, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.

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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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