Competitive Market Segmentation

Sticher, Silvio (December 2013). Competitive Market Segmentation (Discussion Papers 13-13). Bern: Department of Economics

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In a two-firm model where each firm sells a high-quality and a lowquality version of a product, customers differ with respect to their brand preferences and their attitudes towards quality. We show that the standard result of quality-independent markups crucially depends on the assumption that the customers’ valuation of quality is identical across firms. Once we relax this assumption, competition across qualities leads to second-degree price discrimination. We find that markups on low-quality products are higher if consuming a low-quality product
involves a firm-specific disutility. Likewise, markups on high-quality products are higher if consuming a high-quality product creates a firmspecific surplus. For either case, we provide second-order approximations of the equilibrium prices.

Item Type:

Working Paper

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Economics

UniBE Contributor:

Sticher, Silvio

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

Series:

Discussion Papers

Publisher:

Department of Economics

Language:

English

Submitter:

Lars Tschannen

Date Deposited:

18 Dec 2020 15:02

Last Modified:

18 Dec 2020 15:02

JEL Classification:

D43, L13, L15

BORIS DOI:

10.7892/boris.145779

URI:

https://boris.unibe.ch/id/eprint/145779

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