Research Unit on Governance, Competitiveness and Public Policy

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Organizational Unit

Publications

Market configurations when marginal costs are quality‐dependent

Publication . Pires, Cesaltina Pacheco; Jorge, Sílvia Ferreira; Catalão‐Lopes, Margarida; Pinho, Joana; Garcês, Pedro; Alventosa, Adriana

Most quality-then-price decision models under vertical product differentiation consider a predetermined market configuration. We endogenize market configuration considering quality-dependent marginal costs and conclude that a strictly interior full coverage duopoly holds for some parameter values, unveiling the relevance of this commonly assumed market structure. Moreover, we show that a monopoly never arises in equilibrium, and (i) there are multiple equilibria at the frontier between interior and corner full coverage duopoly, (ii) the market is fully (partially) covered when relative tastes' heterogeneity is low (high), and (iii) there is a discontinuity in the transition from partial coverage to full coverage duopoly.

2024Journal article

Open Access

Quality-price choices and market configurations when location matters

Publication . Pires, Cesaltina Pacheco; Catalão-Lopes, Margarida; Jorge, Sílvia Ferreira; Garcês, Pedro

This paper investigates how preexistent asymmetries in the way consumers value each firm's product influence quality-price decisions when consumers differ in quality valuation but incur a transportation cost when buying from the firm located on the periphery. We show that for a given location, the high-quality firm charges a higher price and that for given qualities, the firm located in the center charges higher prices. Regarding quality choices, we show that the firm located in the center may be able to behave as a partial coverage monopolist. Under duopoly, quality differentiation always exists, and in general, the high-quality firm may be located either in the center or on the periphery. Moreover, the qualities offered by both firms are higher when the high-quality firm is on the periphery, showing a substitutability effect between location and quality. Thus, incentivizing the high-quality firm to locate on the periphery improves overall market quality.

2024-06Journal article

Open Access