Discussion paper
DP1268 Are Markets More Competitive if Commodities are Closer Substitutes?
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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