Multi-product bertrand oligopoly with exogenous and endogenous consumer heterogeneity

Dan Bernhardt, Brett Graham

Research output: Contribution to journalArticle

Abstract

We develop a spatial model in which consumers receive firm-specific location shocks and firms endogenously determine both franchise/product locations and prices. Remarkably, firms fail to profit from endogenous product-specific heterogeneity alone: while ex-post consumer heterogeneity ensures positive gross profits, competition for market share results in socially excessive product lines and zero net profits. With added exogenous taste heterogeneity, endogenous spatial heterogeneity drives profits below their levels with only taste heterogeneity. Finally, we introduce multiple product lines and show that when product costs differ across lines, firms earn positive profits as long as consumer preferences over lines are imperfectly correlated.

Original languageEnglish (US)
Pages (from-to)167-209
Number of pages43
JournalB.E. Journal of Theoretical Economics
Volume15
Issue number2
DOIs
StatePublished - Jul 1 2015

Keywords

  • L1
  • L11
  • L13

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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