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Vertical product differentiation and entry deterrence

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  • Stefan Lutz
Abstract
This paper studies how the existence of a potential entrant influences an incumbent’s choice of quality in a model of vertical product differentiation and entry. Both firms face fixed set-up costs and quality-dependent costs of production, and compete on quality and price. With identical quality-dependent costs, the incumbent will always deter entry if possible, i.e. if fixed costs are high. Quality will be set at a level lower than the optimal quality set if entry was accommodated. If entry is not blockaded, quality will be set at a level strictly lower than the optimal quality set under monopoly.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Stefan Lutz, 1997. "Vertical product differentiation and entry deterrence," Journal of Economics, Springer, vol. 65(1), pages 79-102, February.
    • Handle: RePEc:kap:jeczfn:v:65:y:1997:i:1:p:79-102
    DOI: 10.1007/BF01239060
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    References listed on IDEAS

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    1. Weber, S., 1989. "On Hierarchical Spatial Competition," Papers 89-04, York (Canada) - Department of Economics.
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    More about this item

    Keywords

    product differentiation; quality; oligopoly; entry; L12; L13; L15;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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