Abstract. The paper analyses the effects of income concentration on the behaviour of a duopoly with vertical product differentiation and uncovered market. By using a trapezoid distribution, we solve explicitly for market equilibrium as a function of a mean preserving spread of the income distribution. We show that overall more concentrated incomes imply stronger product differentiation, as the presence of a large share of middle-income consumers stimulates a price competition, whose effects are dampened through an enlargement of the quality spread. While the high-quality advantage and market coverage increase unambiguously in the degree of income concentration, the behaviour of prices is non-monotone in the distribution parameter.

Vertical Differentiation and the Distribution of Income

CHIRCO, Alessandra;
2006

Abstract

Abstract. The paper analyses the effects of income concentration on the behaviour of a duopoly with vertical product differentiation and uncovered market. By using a trapezoid distribution, we solve explicitly for market equilibrium as a function of a mean preserving spread of the income distribution. We show that overall more concentrated incomes imply stronger product differentiation, as the presence of a large share of middle-income consumers stimulates a price competition, whose effects are dampened through an enlargement of the quality spread. While the high-quality advantage and market coverage increase unambiguously in the degree of income concentration, the behaviour of prices is non-monotone in the distribution parameter.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11587/105613
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