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Vertical product differentiation in the lab: impact of consumers’ preferences

Author

Listed:
  • Adriana Alventosa
  • Joana Pinho
  • Sílvia Ferreira Jorge
  • Margarida Catalão-Lopes
Abstract
We revisit a quality-then-pricing duopoly game, theoretically and experimentally exploring how heterogeneity in consumers’ preferences affects firms’ decisions and profits. We find that firms differentiate less their products in the lab than the theoretical model predicts, especially when the heterogeneity in consumers’ preferences is high. When this heterogeneity is small, the firm producing the low-quality good profits more than the rival in the lab, which contradicts the theoretical predictions.

Suggested Citation

  • Adriana Alventosa & Joana Pinho & Sílvia Ferreira Jorge & Margarida Catalão-Lopes, 2024. "Vertical product differentiation in the lab: impact of consumers’ preferences," Applied Economics Letters, Taylor & Francis Journals, vol. 31(16), pages 1488-1493, September.
    • Handle: RePEc:taf:apeclt:v:31:y:2024:i:16:p:1488-1493
    DOI: 10.1080/13504851.2023.2198189
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