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Product differentiation and endogenous mode of competition

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  • Massimo Motta
  • Michele Polo

Abstract

There exists a continuum of prices between Bertrand and joint-profit maximization prices which can be interpreted as the outcome of a two-stage game where firms first invest to increase product differentiation and then compete in prices. The lower the costs of differentiating their products from each other the more relaxed competition in the product market and the closer firms will be to the collusive outcome of the one-shot game for given degree of differentiation. The higher the costs the harsher competition in the market and the closer to the Bertrand solution of the one-shot game with given degree of differentiation.

Suggested Citation

  • Massimo Motta & Michele Polo, "undated". "Product differentiation and endogenous mode of competition," Working Papers 134, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    • Handle: RePEc:igi:igierp:134
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    References listed on IDEAS

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    Cited by:

    1. Hoefele, Andreas, 2016. "Endogenous product differentiation and international R&D policy," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 335-346.
    2. BOCCARD, Nicolas & WAUTHY, Xavier, 1999. "Relaxing Bertrand competition : capacity commitment beats quality differentiation," LIDAM Discussion Papers CORE 1999056, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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