Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103843
Authors: 
Sticher, Silvio
Year of Publication: 
2013
Series/Report no.: 
Discussion Papers, Department of Economics, Universität Bern 13-13
Abstract: 
In a two-firm model where each firm sells a high-quality and a low-quality 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 firm-specific surplus.
Subjects: 
price differentiation
vertical competition
JEL: 
D43
L13
L15
Document Type: 
Working Paper

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