Date of This Version
3-3-2016
Abstract
In this paper, we tackle the dilemma of pruning versus proliferation in a vertically differentiated oligopoly under the assumption that some firms collude and control both the range of variants for sale and their corresponding prices, likewise a multiproduct firm. We analyse whether pruning emerges and, if so, a fighting brand is marketed. We find that it is always more profitable for colluding firms to adopt a pricing strategy such that some variants are withdrawn from the market. Under pruning, these firms commercialize a fighting brand only when facing competitors in a low-end market. The same findings do not hold when firms are horizontally differentiated along a circle.
Recommended Citation
Gabszewicz, Jean; Marini, Marco; and Tarola, Ornella, "Vertical Differentiation and Collusion: Cannibalization or Proliferation?" (March 03, 2016). Fondazione Eni Enrico Mattei Working Papers. Paper 1101.
https://services.bepress.com/feem/paper1101