EFMD EQUIS CREDITED Industrial organization Lecture 4 Markets for Differentiated products 學火旦 于 udan university
Binglin Gong Fudan University Industrial Organization Lecture 4 Markets for Differentiated Products
Product Differentiation Most industries produce a large number of similar but not identical products Only a small subset of all possible varieties of differentiated products are actually produced. For example, most products are not available in all colors Most industries producing differentiated products are concentrated, in the sense that it is typical to have two to five firms in an industry Consumers purchase a small subset of the available product varieties
Product Differentiation • Most industries produce a large number of similar but not identical products. • Only a small subset of all possible varieties of differentiated products are actually produced. For example, most products are not available in all colors. • Most industries producing differentiated products are concentrated, in the sense that it is typical to have two to five firms in an industry. • Consumers purchase a small subset of the available product varieties
Two approches Product differentiation models are divided into two groups non-address models and address (location) models
Two approches Product differentiation models are divided into two groups: • non-address models, • and address (location) models
Diff product models Non-address approach Address Circular Linear Endogenous variety FⅨ ed variety Static Sequential static Sequential Cournot Bertrand Cournot Bertrand
Non Address approach Counot Competition Consider a two-firm industry producing two differentiated products indexed by i=1, 2. Following Dixit(1979)and Singh and Vives(1984), we assume the following (inverse) demand structure for the two products P1=a-Bq1-792 and p2=a-?91-Bq2, where A>0,8> (71) Implied assumptions There is a fixed number of two brands 2. Own-price effect dominates the cross-price effect: The price of a brand is more sensitive to a change in the quantity of this brand than to a change in the quantity of the competing brand
Non Address approach Counot Competition • Consider a two-firm industry producing two differentiated products indexed by i = 1, 2. Following Dixit (1979) and Singh and Vives(1984), we assume the following (inverse) demand structure for the two products: • Implied assumptions: 1. There is a fixed number of two brands. 2. Own-price effect dominates the cross-price effect: The price of a brand is more sensitive to a change in the quantity of this brand than to a change in the quantity of the competing brand