Endogenous Horizontal Product Differentiation under Bertrand and Cournot Competition: Revisiting the Bertrand Paradox

AbstractThis paper analyzes how a tax/subsidy policy affects consumers' behavior when choosing between green (pollution-free goods) and conventional products, and its effects on welfare when a proportion of consumers have strong preferences for green goods. We analyze a Hotelling's linear city model where final products by two firms are symmetric in all dimensions except for the externality their production process generates. Our efficiency comparisons suggest that, under a setting of horizontal product differentiation, an environmental regulation (either on polluting firms or consumers buying their products) yields higher social welfare than the absence of policy. Moreover, the proportion of consumers who prefer green products affects the welfare gains from a subsidy or tax policy.

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Endogenous product differentiation and product R&D in spatial Cournot competition

The Annals of Regional Science ◽

10.1007/s00168-011-0440-x ◽

2011 ◽

Vol 49 (1) ◽

pp. 117-133 ◽

Cited By ~ 2

Author(s):

Takeshi Ebina ◽

Daisuke Shimizu

Keyword(s):

Product Differentiation ◽

Cournot Competition ◽

Spatial Cournot Competition

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Horizontal Product Differentiation: Disclosure and Competition

Journal of Industrial Economics ◽

10.1111/joie.12104 ◽

2016 ◽

Vol 64 (4) ◽

pp. 589-620 ◽

Cited By ~ 7

Author(s):

Maarten C.W. Janssen ◽

Mariya Teteryatnikova

Keyword(s):

Product Differentiation ◽

Horizontal Product Differentiation

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Product Differentiation in a Vertical Structure

The B E Journal of Theoretical Economics ◽

10.1515/bejte-2020-0037 ◽

2020 ◽

Vol 0 (0) ◽

Author(s):

Tien-Der Han ◽

M. Emranul Haque ◽

Arijit Mukherjee

Keyword(s):

Product Differentiation ◽

Vertical Structure ◽

Returns To Scale ◽

Pricing Strategy ◽

Bertrand Competition ◽

Price Determination ◽

Free Entry ◽

Horizontal Product Differentiation ◽

Goods Market ◽

Cournot And Bertrand Competition

AbstractWe consider final goods producers’ preference for horizontal product differentiation in the presence of strategic input price determination. Final goods producers may not prefer maximal differentiation but may prefer moderate differentiation under both Cournot and Bertrand competition in the final goods market if product differentiation does not increase the market size significantly and there is either free entry in the input market or the input supplier has increasing returns to scale technology. Thus, we provide a new rationale for moderate product differentiation. Our reasons are different from the existing reasons of mixed pricing strategy, endogenous leadership, no-buy option for the consumers and the relative performance incentive schemes.

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