Year: 2024
Type: article
Abstract: This work revisits the classic spatial duopoly location-then-prices competition with quadratic transportation costs, in the presence of vertical differentiation. We show that contrary to the substitutability between horizontal and vertical differentiation that has appeared thus far in the literature, higher-quality asymmetry does not affect locational differentiation in equilibrium. While the better-quality seller indeed approaches the city center, the worse-quality seller is simultaneously driven further away from the city, and ultimately out of the market when quality differences become large enough. Interestingly, although vertical differentiation weakens competition, total welfare increases – even when the better-quality seller ultimately monopolizes the market.
Authors: Alon Cohen, Aviad Heifetz
Institution: Open University of Israel
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,090
Funder: Open University of Israel
OpenAlex ID: W4402343487