Product quality, competition, and multi-purchasing
Working paper
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http://hdl.handle.net/11250/164201Utgivelsesdato
2012-08Metadata
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Sammendrag
In a Hotelling duopoly model, we introduce quality that is more
appreciated by closer consumers. Then higher common quality raises equilibrium
prices, in contrast to the standard neutrality result. Furthermore, we allow con-
sumers to buy one out of two goods (single-purchase) or both (multi-purchase).
Prices are strategically independent when some consumers multi-purchase because
suppliers price the incremental benefi t to marginal consumers. In a multi-purchase
regime, there is a hump-shaped relationship between equilibrium prices and quality
when quality functions overlap. If quality is sufficiently good, it might be a dominant
strategy for each supplier to price high and eliminate multi-purchase.