Wednesday, July 20, 2016
Jean J. Gabszewicz (CORE, Université Catholique de Louvain) ; Marco A. Marini (Universita La Sapienza, Roma) and Ornella Tarola (Universita La Sapienza, Roma) ask Vertical Differentiation and Collusion: Cannibalization or Proliferation?
ABSTRACT: In this paper, we tackle the dilemma of pruning versus proliferation in a vertically differentiated oligopoly under the assumption that some firms collude and control both the range of variants for sale and their corresponding prices, likewise a multiproduct firm. We analyse whether pruning emerges and, if so, a fighting brand is marketed. We find that it is always more profitable for colluding firms to adopt a pricing strategy such that some variants are withdrawn from the market. Under pruning, these firms commercialize a fighting brand only when facing competitors in a low-end market. The same findings do not hold when firms are horizontally differentiated along a circle.