Monday, July 18, 2016

Vertical Differentiation and Collusion: Cannibalization or Proliferation?

Gabszewicz, Jean J. ; Marini, Marco A. and Tarola, Ornella 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 We find that it is always more profitable for colluding firms to adopt a pricing strategy such that some variants are withdrawn from the market.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.

https://lawprofessors.typepad.com/antitrustprof_blog/2016/07/vertical-differentiation-and-collusion-cannibalization-or-proliferation.html

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