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Competition through second-hand products when consumers differ in risk aversion

Author

Listed:
  • Grilo, Isabel

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE); Lille III, Gremars)

  • Wauthy, Xavier

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) ; Belgian National Fund for Scientific Research (FNRS))

Abstract

When consumers differ in their attitude towards risk, price competition between products of uncertain characteristics may be analyzed using address-models of product differentiation. These models provide a natural set-up for analyzing industries in which products of different reliability may coexist. This is in particular the case of second-hand markets. For such industries, we characterize the Nash equilibrium in prices and the associated market outcomes. They are shown to depend mainly on the distribution of risk aversion in the population. When the degree of reliability is chosen before price competition takes place, maximal differentiation results, yielding either horizontal or vertical differentiation configurations.

Suggested Citation

  • Grilo, Isabel & Wauthy, Xavier, 1997. "Competition through second-hand products when consumers differ in risk aversion," LIDAM Discussion Papers IRES 1997011, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:1997011
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    File URL: http://sites.uclouvain.be/econ/DP/IRES/9711.ps
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    References listed on IDEAS

    as
    1. Gabszewicz, Jean J. & Garella, Paolo, 1986. "Subjective price search and price competition," International Journal of Industrial Organization, Elsevier, vol. 4(3), pages 305-316, September.
    2. Anderson, Simon P. & Ginsburgh, Victor A., 1994. "Price discrimination via second-hand markets," European Economic Review, Elsevier, vol. 38(1), pages 23-44, January.
    3. Hirshleifer, J & Riley, John G, 1979. "The Analytics of Uncertainty and Information-An Expository Survey," Journal of Economic Literature, American Economic Association, vol. 17(4), pages 1375-1421, December.
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    More about this item

    Keywords

    differentiation; risk aversion; risky products;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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