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Strategic Vertical Differentiation and Durable Goods Monopoly
Author(s) -
Takeyama Lisa N.
Publication year - 2002
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/1467-6451.00167
Subject(s) - cannibalization , durable good , monopoly , quality (philosophy) , coase theorem , product differentiation , exploit , industrial organization , product line , product (mathematics) , production (economics) , microeconomics , intermediate good , economics , commerce , business , dimension (graph theory) , engineering , computer science , manufacturing engineering , transaction cost , cournot competition , philosophy , geometry , computer security , mathematics , epistemology , pure mathematics
This paper considers a novel and strategic use of quality as a means for solving the durable‐goods time inconsistency problem. It demonstrates how durable‐goods producers can exploit the cannibalization of high‐quality markets by low‐quality goods. Relative to the static product line solution, this strategic dimension of quality choice implies higher quality levels of low‐end goods and the production of some low‐end products that would not otherwise be produced. In some cases, low‐end goods may rationally be sold below cost. The paper, therefore, offers a purely Coasian explanation for vertical product differentiation.