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Ambiguous consumer tastes and product differentiation

Author

Listed:
  • Olivier Kayser

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

Considering that firms have multiple consumer taste distributions, we introduce in the vertical differentiation framework an ambiguous demand in a duopoly. We investigate the effects of ambiguity aversion on product differentiation and pricing choices. By specifying these distributions by Heaviside functions we obtain results on the existence and form of several Subgame-Perfect Nash Candidate Equilibria. The associated equilibrium prices are decreasing with ambiguity aversion. Under the market coverage assumption, we show that the level of differentiation is always maximal whatever the degree of ambiguity aversion. Finally, we study which of the Subgame-Perfect Nash Candidate Equilibria is the solution of the game depending on the width of the taste distributions and the degree of ambiguity aversion.

Suggested Citation

  • Olivier Kayser, 2023. "Ambiguous consumer tastes and product differentiation," Working Papers hal-04159834, HAL.
    • Handle: RePEc:hal:wpaper:hal-04159834
    Note: View the original document on HAL open archive server: https://hal.science/hal-04159834
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