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Product lines and price discrimination in the European car market

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  • Victor Ginsburgh
  • Shlomo Weber

Abstract

In this paper we consider a model of oligopolistic competition where firms make a two-dimensional product line decision. They choose a location in style space, thus inducing horizontal differentiation, and produce different qualities (a product line) of a given good (vertical differentiation), consumed by a population of customers who differ in their income and preference for style. We prove the existence of a non-cooperative equilibrium and show that, as the degree of competition increases, prices approach marginal cost. The approach is used to show that European car producers seem indeed to use product lines to discriminate across EU countries.

Suggested Citation

  • Victor Ginsburgh & Shlomo Weber, 2002. "Product lines and price discrimination in the European car market," ULB Institutional Repository 2013/1689, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/1689
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    References listed on IDEAS

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    1. Gilbert, Richard J & Matutes, Carmen, 1993. "Product Line Rivalry with Brand Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 41(3), pages 223-240, September.
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    7. Mertens, Yves & Ginsburgh, Victor, 1985. "Product Differentiation and Price Discrimination in the European Community: The Case of Automobiles," Journal of Industrial Economics, Wiley Blackwell, vol. 34(2), pages 151-166, December.
    8. repec:adr:anecst:y:1989:i:15-16:p:06 is not listed on IDEAS
    9. Steven Berry & James Levinsohn & Ariel Pakes, 2004. "Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Car Market," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 68-105, February.
    10. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    11. Victor Ginsburgh & Yves Mertens, 1985. "Product differentiation and discrimination in the European Community: the case of automobiles," ULB Institutional Repository 2013/1755, ULB -- Universite Libre de Bruxelles.
    12. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
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    Cited by:

    1. Sílvia Jorge & Cesaltina Pires, 2004. "Delivered versus Mill Nonlinear Pricing in Free Entry Markets," Working Papers de Economia (Economics Working Papers) 22, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
    2. José A. Novo‐Peteiro, 2023. "Product design with attribute dependence," Manchester School, University of Manchester, vol. 91(4), pages 361-385, July.
    3. Dvir, Eyal & Strasser, Georg, 2018. "Does marketing widen borders? Cross-country price dispersion in the European car market," Journal of International Economics, Elsevier, vol. 112(C), pages 134-149.
    4. Gianpaolo Rossini & Paolo Zanghieri, 2008. "What Drives Price Differentials of Consumables in Europe? Size? Affluence? Or Both?," Open Economies Review, Springer, vol. 19(1), pages 121-134, February.

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