Multi-product and vertical differentiation Online publication date: Thu, 15-Oct-2015
by Wenbang Yuan
Global Business and Economics Review (GBER), Vol. 17, No. 4, 2015
Abstract: Product depth is determined by fix cost and quality-dependent marginal cost coefficient when market is monopolised, and the product depth is lower than the optimum level that society prefers to. Under the assumption that consumers are uniformly distributed in the market, the quality levels of products in the product line are distributed evenly and the intervals of the quality are equal. The price of each product is influenced only by the product's quality and quality-dependent marginal cost coefficient, and has no relationship with the other product's price and quality. The firm will consider introducing a new product only when the introduction cost is small enough. It is no difference for the firm to introduce the intermediate product or the bottom product, and it is superior to introducing top product. The product quality as a whole will continue to upgrade if there is technological innovation, and in this case, the higher-quality products continues to emerge along with the elimination of the bottom products, and the price of the product with the same quality is lower after innovation.
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