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Discussion Paper Details

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Title: Are Markets More Competitive if Commodities are Closer Substitutes?

Author(s): Norbert Schulz

Publication Date: November 1995

Keyword(s): Oligopoly, Product Differentiation, Search Goods and Substitutability

Programme Area(s): International Trade and Regional Economics

Abstract: Equilibrium prices of the variants of a differentiated commodity are shown to increase if the variants become closer substitutes, under a set of circumstances, which is by no means pathological. Rather, the underlying argument has a bearing on market prices, whenever a potential buyer does not know with certainty the characteristics of the variants for sale before inspecting them, and therefore must incur some information costs before the final purchase decision.

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Bibliographic Reference

Schulz, N. 1995. 'Are Markets More Competitive if Commodities are Closer Substitutes?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1268