Citation

Discussion Paper Details

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Full Details

Title: Product Lines and Price Discrimination in Markets with Information Frictions

Author(s): Natalia Fabra and Juan Pablo Montero

Publication Date: May 2017

Keyword(s): pricing strategy, product strategy, retail competition, search, second degree price discrimination and vertical differentiation

Programme Area(s): Industrial Organization

Abstract: A well known principle in economics is that firms differentiate their product offerings in order to relax competition. However, in this paper we show that in-formation frictions can invalidate this principle. We build a duopolistic model of second-degree price competition with information frictions in which (i) there always exists an equilibrium with overlapping qualities, whereas (ii) the equilibrium with non-overlapping qualities exists only when both information frictions and the costs of providing high quality are small enough. As a consequence, reasons other than the attempt to soften competition should be used to explain why firms in some cases carry non-overlapping product lines.

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Bibliographic Reference

Fabra, N and Montero, J. 2017. 'Product Lines and Price Discrimination in Markets with Information Frictions'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12046