VERTICAL DIFFERENTIATION AND THE DISTRIBUTION OF INCOME |
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Authors: | Corrado,Benassi ,Alessandra,Chirco &dagger Caterina,Colombo |
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Affiliation: | Dipartimento di Scienze Economiche, Alma Mater Studiorum—Universitàdi Bologna;, Dipartimento di Scienze Economiche e Matematico-Statistiche, Universitàdi Lecce;, and Dipartimento di Economia Istituzioni Territorio, Universitàdi Ferrara, Italy |
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Abstract: | The paper analyses the effects of income concentration on the behaviour of a duopoly with vertical product differentiation and uncovered market. By using a trapezoid distribution, we solve explicitly for market equilibrium as a function of a mean preserving spread of the income distribution. We show that overall more concentrated incomes imply stronger product differentiation, as the presence of a large share of middle‐income consumers stimulates a price competition, whose effects are dampened through an enlargement of the quality spread. While the high‐quality advantage and market coverage increase unambiguously in the degree of income concentration, the behaviour of prices is non‐monotone in the distribution parameter. |
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Keywords: | demand elasticity income concentration mean preserving spread vertical differentiation |
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