DP10324 Product Line Design

Author(s): Simon P Anderson, Levent Celik
Publication Date: December 2014
Keyword(s): Cournot multi-product competition, product differentiation, product line design, product line pricing, second-degree price discrimination
JEL(s): L12, L13, L15
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10324

We characterize the product line choice and pricing of a monopolist as the upper envelope of net marginal revenue curves to the individual product demand functions. The equilibrium product varieties to include in a product line are those yielding the highest upper envelope. In a central case (corresponding to a generalized vertical differentiation framework), the equilibrium range of varieties is exactly the same as the first-best socially optimal range. These upper envelope and first-best optimal range findings extend to a symmetric Cournot oligopoly as well.