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VERTICAL DIFFERENTIATION AND THE DISTRIBUTION OF INCOME
Author(s) -
Benassi Corrado,
Chirco Alessandra,
Colombo Caterina
Publication year - 2006
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.0307-3378.2006.00249.x
Subject(s) - duopoly , product differentiation , economics , distribution (mathematics) , competition (biology) , income distribution , quality (philosophy) , microeconomics , market share , product (mathematics) , econometrics , mathematics , inequality , mathematical analysis , ecology , philosophy , geometry , epistemology , cournot competition , biology , finance
The paper analyses the effects of income concentration on the behaviour of a duopoly with vertical product differentiation and uncovered market. By using a trapezoid distribution, we solve explicitly for market equilibrium as a function of a mean preserving spread of the income distribution. We show that overall more concentrated incomes imply stronger product differentiation, as the presence of a large share of middle‐income consumers stimulates a price competition, whose effects are dampened through an enlargement of the quality spread. While the high‐quality advantage and market coverage increase unambiguously in the degree of income concentration, the behaviour of prices is non‐monotone in the distribution parameter.