Pricing heterogeneous goods


Horizontal competition

Assured and contestable demand

So buyer wants 100 from incumbent, and 50 more.

First 100 are assured. 50 are contestable.

Cournot, bertrand mean entrant gets something

However rebates from incumbant blocks entrant.

eg reduce unit price for all if sales above certain amount

Product differentiation

Hotelling competition

Compete on quality, features, on an axis. For example 2 shops in equilibrium are next to each other on road, to capture both on either side.

Vertical differentiation

quality and price. everyone prefers high quality, but different preferences for tradeoff

Horizontal differentiation

different preferences for characteristics. eg car colour

Bertrand competition with differentiated products

\(q_1=a-b_1p_1+b_2p_2\) \(q_2=a-b_1p_2+b_2p_1\)

Pricing multiple products

Bertrand competition with differentiated products

Can have competing products.