The Economic Theory Of Product Differentiation (sur Le Capitalisme Moderne)

There are few industries in modern market economies that do not manufacture differentiated products. This book provides a systematic explanation and analysis of the widespread prevalence of this important category of products. The authors concentrate on models in which product selection is endogenous. In the first four chapters they consider models that try to predict the level of product differentiation that would emerge in situations of market equilibrium. These market equilibria with differentiated products are characterised and then compared with social welfare optima. Particular attention is paid to the distinction between horizontal and vertical differentiation as well as to the related issues of product quality and durability. This book brings together the most important theoretical contributions to these topics in a succinct and coherent manner. One of its major strengths is the way in which it carefully sets out the basic intuition behind the formal results. It will be useful to advanced undergraduate and graduate students taking courses in industrial economics and microeconomic theory. Cover......Page 1 Frontmatter......Page 2 Contents......Page 8 Preface......Page 10 1.1 The aims of the book......Page 12 1.2 Methodology and overview......Page 13 1.3 The formalisation of product differentiation......Page 15 1.4 The incentive to differentiate......Page 17 1.5 Some basic propositions......Page 19 1.6 Product differentiation and welfare......Page 20 2.1 Introduction......Page 22 2.2 Price competition in a model of spatial duopoly......Page 24 2.3 Transportation costs and the existence problem......Page 28 2.4 The choice of location (or product selection) in spatial models......Page 33 2.5 Long-run equilibrium with costless relocation......Page 45 3.1 Introduction......Page 53 3.2 The oligopoly equilibrium......Page 58 3.3 Monopolistic competition......Page 63 4.1 Introduction and some preliminary results......Page 67 4.2 A digression into the case of homogeneous products......Page 70 4.3 Product diversity: first- and second-best optima and the market equilibrium......Page 71 4.4 Biases in product selection......Page 78 5.1 Introduction......Page 84 5.2 Quality choice: welfare optimum and market equilibria......Page 86 5.3 Durability: quality and quantity as pure substitutes......Page 94 5.4 Durability: stock and flow equilibrium......Page 97 5.5 Quality choice under oligopoly: symmetric equilibrium......Page 105 5.6 Product reliability......Page 116 6.1 Introduction......Page 120 6.2 The finiteness property and natural oligopolies......Page 125 6.3 The finiteness property again......Page 134 6.4 Quality selection......Page 137 6.5 Conclusion: product differentiation and market structure......Page 143 7.1 Introduction......Page 146 7.2 Horizontal product differentiation: limiting market equilibria......Page 149 7.3 Vertical product differentiation and industrial structure......Page 166 8.2 The existence of pure profit in free-entry equilibrium......Page 171 8.3 Brand proliferation and entry deterrence......Page 176 8.4 Exit costs......Page 180 8.5 Product specification as an alternative entry-deterrence strategy......Page 181 8.6 Market preemption in expanding markets......Page 182 9.1 Introduction......Page 184 9.2 The gains from trade under horizontal product differentiation......Page 185 9.3 The gains from trade in vertically differentiated products......Page 188 9.4 Conclusion......Page 193 Notes......Page 195 Bibliography......Page 205 Indexes......Page 211 This book presents economic theories that seek to explain the prevalence of differentiated products in market economies. It uses these theories to derive market equilibria and to compare these to social optima for both horizontally and vertically differentiated products. The implications of product differentiation for market structure and power, strategic entry deterrence and international trade are all examined. John Beath And Yannis Katsoulacos. Includes Bibliographical References (p. 194-199) And Indexes.