Premium
Nesting Horizontal and Vertical Differentiation with Location Choices
Author(s) -
Guo WenChung,
Lai FuChuan
Publication year - 2013
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12035
Subject(s) - product differentiation , horizontal and vertical , vertical integration , economics , incentive , taste , nesting (process) , population , microeconomics , boundary (topology) , product (mathematics) , industrial organization , mathematics , biology , geometry , engineering , mechanical engineering , mathematical analysis , food science , demography , cournot competition , sociology
This study solves a location‐then‐price game in which horizontal and vertical differentiation are combined using an asymmetric distribution of consumers’ taste. Boundary locations are robust when the taste disparity of the population is not large and out‐of‐market locations are not allowed. Firms may have incentives to move either inside or outside the market in other situations, so the equilibrium prices are never differentiated. The restrictions of vertical differentiation under this framework are further examined. A model with the entrance of a vertically differentiated product is also discussed.