A note on the low‐quality advantage in vertical product differentiation

In this paper, we modify the analysis of Schubert (2017), who found low‐quality advantage arising from vertical differentiation. Here, we relax the assumption of a sufficiently high reservation utility (so that consumers will always buy the good) to include the case in which they can refrain from bu...

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Bibliographic Details
Published in:Managerial and decision economics 2019-03, Vol.40 (2), p.176-179
Main Author: Niem, Le Duc
Format: Article
Language:English
Subjects:
Advantages
Consumers
Differentiation
Economic models
Product differentiation
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Summary:In this paper, we modify the analysis of Schubert (2017), who found low‐quality advantage arising from vertical differentiation. Here, we relax the assumption of a sufficiently high reservation utility (so that consumers will always buy the good) to include the case in which they can refrain from buying the good. We find an explicit solution to profit functions, with the result that low‐quality advantage disappears.
ISSN:0143-6570
1099-1468
DOI:10.1002/mde.2993