Price competition and product differentiation when goods have network effects

  • Conrad K
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The objective of our approach is to develop a model that captures horizontal product differentiation under environmental awareness with price competition whereby environmentally friendly products are costlier to produce. As an example, we refer to automobile producers offering cars with a gasoline-powered engine and one with a natural gas-powered engine. The network of petrol stations provides the complementary good. We use a two-stage game in prices and characteristics to analyse the market structure. In order to find out whether a private decision on the type of engine coincides with a socially optimal product differentiation, we determine the position of the two types of engine by a welfare- maximizing

Author-supplied keywords

  • Automobiles
  • Environmental awareness
  • Network effects
  • Price competition
  • Quality competition

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  • Klaus Conrad

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