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A note on the low‐quality advantage in vertical product differentiation
Author(s) -
Niem Le Duc
Publication year - 2019
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.2993
Subject(s) - product differentiation , quality (philosophy) , reservation , profit (economics) , product (mathematics) , microeconomics , economics , industrial organization , computer science , mathematics , physics , geometry , computer network , quantum mechanics , cournot competition
In this paper, we modify the analysis of Schubert (2017), who found low‐quality advantage arising from vertical differentiation. Here, we relax the assumption of a sufficiently high reservation utility (so that consumers will always buy the good) to include the case in which they can refrain from buying the good. We find an explicit solution to profit functions, with the result that low‐quality advantage disappears.