Product differentiation and market power

  • Egbert Dierker
  • Hildegard Dierker
Part of the Advances in Mathematical Economics book series (MATHECON, volume 1)


Assuming symmetry across firms and constant unit costs Perloff and Salop (1985) show: If product differentiation increases, prices rise in a symmetric equilibrium. This raises the question of whether, in general, more product differentiation leads to higher market prices. Giving up the symmetry and the constant unit costs assumptions we present examples in which at least one firm lowers its equilibrium price when product differentiation increases. We formulate a model of product differentiation and state and discuss, within the theory of supermodular games, conditions ensuring that all firms raise their prices in a Nash equilibrium if product differentiation increases.


Nash Equilibrium Product Differentiation Market Power Demand Function Equilibrium Price 
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Copyright information

© Springer-Verlag 1999

Authors and Affiliations

  • Egbert Dierker
    • 1
  • Hildegard Dierker
    • 1
  1. 1.Institut für WirtschaftswissenschaftenUniversität WienViennaAustria

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