Product Differentiation and Price Competition between a Safe and a Risky Seller
Univ. of Bern Dept. of Economics Disc. Paper No. 98-07
24 Pages Posted: 28 Jan 1999
There are 2 versions of this paper
Product Differentiation and Price Competition between a Safe and a Risky Seller
Product Differentiation and Price Competition between a Safe and a Risky Seller
Date Written: October 1998
Abstract
We consider a market served by a safe and a risky seller. While the expensive safe seller can solve the problems of all consumers, the cheap risky seller can help a consumer only with a certain probability. The risky seller's success probabilities are distributed across consumers, and by the choice of her quality the risky seller determines the shape of this distribution. If the risky seller fails, a consumer ends up with the safe seller, paying for the service twice. We study the price-quality competition between the two providers. We show that the principle of maximum product differentiation does not hold in our model, i.e., the risky seller does not choose the minimum quality level in order to relax price competition.
JEL Classification: D43, L13, L15
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
On Doctors, Mechanics and Computer Specialists - the Economics of Credence Goods
By Uwe Dulleck and Rudolf Kerschbamer
-
Physician Fees and Procedure Intensity: the Case of Cesarean Delivery
By Jonathan Gruber, John Kim, ...
-
On Doctors, Mechanics and Computer Specialists or Where are the Problems with Credence Goods
By Uwe Dulleck and Rudolf Kerschbamer
-
On Doctors, Mechanics and Computer Specialists. Or Where are the Problems with Credence Goods?
By Uwe Dulleck and Rudolf Kerschbamer
-
A Theory of Fraud and Over-Consumption in Experts Markets
By Ingela Alger and François Salanié
-
Insurance in a Market for Credence Goods
By Kai E. Sülzle and Achim Wambach
-
Experts vs Discounters: Competition and Market Unravelling When Consumers Do Not Know What They Need
By Uwe Dulleck and Rudolf Kerschbamer