Vertical differentiation and collusion: pruning or proliferation?

Jaskold Gabszewicz, Jean;Marini, Marco A.;Tarola, Ornella
(2017) Research in Economics — Vol. 71, n° 1, p. 129-139 (2017)

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Authors
  • Jaskold Gabszewicz, JeanUCLouvain
    Author
  • Marini, Marco A.Universita di Roma La Sapienza
    Author
  • Tarola, OrnellaUCLouvain
    Author
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 We find that it is always more profitable for colluding firms to adopt a pricing strategy such that some variants are withdrawn from the market.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.
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Jaskold Gabszewicz, J., Marini, M. A., & Tarola, O. (2017). Vertical differentiation and collusion: pruning or proliferation? Research in Economics, 71(1), 129-139. https://doi.org/10.1016/j.rie.2016.10.003 (Original work published 2017)