Vertical Differentiation and Collusion: Cannibalization or Proliferation?

Gabszewicz, Jean Jaskold; Marini, Marco A.; Tarola, Ornella

doi:10.2139/ssrn.2744525

Cited by 3 publications

(4 citation statements)

References 22 publications

(22 reference statements)

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“…There also exists literature that considers the effects of a merger on nonprice parameters, including product quality (Fan, 2013;Pinto & Sibley, 2016;Qiu, 2018), inventory (Cho & Wang, 2017), product variety (Gabszewicz et al, 2016;Mazzeo et al, 2018;Milliou & Sandonis, 2018), positioning Production and Operations Management (Gandhi et al, 2008;Sweeting, 2010), and innovation (Davidson & Ferrett, 2007). The literature that considers the effects of a merger on both price and quality decisions is scarce and mainly adopts simulation or empirical studies and focuses on centralized mergers.…”

Section: Literature Reviewmentioning

confidence: 99%

To centralize or decentralize: Mergers under price and quality competition

Guo

Kuang

2023

Production and Operations Management

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This paper examines firms' post-merger integration (PMI) strategy under price and service-quality competition when facing either deterministic or stochastic demand. Although horizontal mergers are prevalent in practice and have been analyzed extensively in the literature, little attention has been paid to the choice of PMI level. We develop a game-theoretic model, in which multiple firms compete on price and service quality with either deterministic or stochastic demand, and two of them decide whether and how to merge. The post-merger firm can enjoy higher cost efficiency due to cost synergy and needs to choose between centralized and decentralized mergers (i.e., PMI level). A centralized merger allows centralized decision-making and inventory pooling for the two participant firms, while a decentralized merger allows decentralized decision-making and inventory transshipment between the participant firms. We highlight some interesting findings. First, under either deterministic or stochastic demand, we find that a centralized merger is not always beneficial since its collusion effect may induce the nonparticipant firm to adopt more aggressive strategies, and thus a decentralized merger may be more profitable and preferred by the post-merger firm as it allows competition between the participants and leads to a more balanced market. Second, in a decentralized merger, stronger fixed cost synergy may backfire and hurt each participant as it could intensify service-quality competition between the two participants, and risk pooling (via inventory transshipment) under stochastic demand may even reduce the participant firms' profits as it may intensify both service-quality and price competition. Third, a participant firm's service quality, price, and in-stock probability may be either improved or reduced after merging, depending on the PMI level, cost synergy, demand sensitivity, and demand uncertainty.

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Section: Literature Reviewmentioning

confidence: 99%

To centralize or decentralize: Mergers under price and quality competition

Guo

Kuang

2023

Production and Operations Management

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“…Keeping the traditional interpretation from vertical differentiation models, parameter θ is proportional to the willingness to pay (henceforth WTP) for intrinsic quality, so that b denotes the maximal WTP for the performance of a product among consumers. 20 Formally, the 1 7 It is worth noting that, from a social welfare viewpoint, the relative environmental quality of a variant does not play any role, being rather the absolute level of emissions, eL and eH , the reference point of a social planner. 1 8 We also focus on the case in which firms produce different qualities so as to exclude that price competition leads to a Bertrand paradox.…”

Section: The Modelmentioning

confidence: 99%

“…Relative preferences make the choice between the two variants far from being evident, and add a further dimension of product heterogeneity with unexpected effects on the traditional mechanism of competition between firms in a vertically differentiated market. 6 We refer the interested reader to Scarpa (1998) and Gabszewicz et al (2016) for an in-depth analysis of this property. 7 The Italian guidelines are a joint initiative promoted by the Ministry of Transportation, the Ministry of Economic Development and the Ministry of Environment.…”

Section: Introductionmentioning

confidence: 99%

Hedonic and environmental quality: A hybrid model of product differentiation

Mantovani

Tarola

Vergari

2016

Resource and Energy Economics

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tIn this paper, we analyze how strategic competition between a green firm and a browncompetitor develops when their products are differentiated along two dimensions: hedonicquality and environmental quality. The former dimension refers to the pure (intrinsic) per-formance of the good, whereas the latter dimension has a positional content: buying greengoods satisfies the consumer’s desire to be portrayed as a socially worthy citizen. We con-sider the case in which these quality dimensions are in conflict with each other so that thehigher the hedonic quality of a good, the lower the corresponding environmental quality.We characterize the equilibrium configurations and discuss the policy implications deriving from ou model

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“…Proof of Proposition 1. (Gabszewicz et al 2016a). Take a generic intermediate cartel of h n 2 …rms initially selling variants q k ; q k+1 ; q k+2 ; :::; q k+h and competing, both with a left-hand fringe of independent …rms selling lower quality variants q 1 ; q 2 ; :::; q k 1 and with a righ-hand fringe selling, alternatively, higher quality variants q k+h+1 ; q k+h+2 ; :::; q n .…”

Section: Omitted Proofsmentioning

confidence: 99%