Product quality, competition, and multi-purchasing

Simon Anderson, Hans Jarle Kind and Øystein Foros

No 8923, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In a Hotelling duopoly model, we introduce quality that is more appreciated by closer consumers. Then higher common quality raises equilibrium prices, in contrast to the standard neutrality result. Furthermore, we allow consumers to buy one out of two goods (single-purchase) or both (multi-purchase). Prices are strategically independent when some consumers multi-purchase because suppliers price the incremental benefit to marginal consumers. In a multi-purchase regime, there is a hump-shaped relationship between equilibrium prices and quality when quality functions overlap. If quality is sufficiently good, it might be a dominant strategy for each supplier to price high and eliminate multi-purchase.

Keywords: Hotelling model with quality; Multi-purchase; Incremental pricing; Content competition (search for similar items in EconPapers)
JEL-codes: D12 D71 D82 H41 O12 (search for similar items in EconPapers)
Date: 2012-04
New Economics Papers: this item is included in nep-bec, nep-com and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Product quality, competition, and multi-purchasing (2012)
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