Abstract
The article examines a differentiated-products duopoly model where the firms make entry decisions to two markets and then choose prices. The effects of product differentiation and entry costs are analyzed in two games: with and without price discrimination between the markets. Allowing price discrimination encourages more entry and tends to reduce prices and profits and to increase consumer welfare in both markets. The model suggests that firms might be better off if they agree not to price discriminate between different markets. It also suggests that when the market is not a natural monopoly, regulators should consider the effects of universal service requirements on entry before adopting them, because entry might be discouraged by such requirements, leading to less competitive markets.
Original language | English |
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Pages (from-to) | 227-245 |
Number of pages | 19 |
Journal | Topics in Economic Analysis and Policy |
Volume | 3 |
Issue number | 1 |
DOIs | |
State | Published - 1 Jan 2003 |
Externally published | Yes |
Keywords
- Cross-market price constraints
- Duopoly
- Entry
- Price discrimination
- Product differentiation
- Regulation
- Universal service requirements
ASJC Scopus subject areas
- General Economics, Econometrics and Finance