Zacharias, Eleftherios (2009): Firm entry, product repositioning and welfare.
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We show that the entry of a second firm in a horizontally differentiated market (ala Hotelling) may harm consumers as prices increase and consumer's surplus possibly decrease. We first derive the price and the consumer's surplus of a monopoly which is located at the center of the market. When a second firm enters the market the first firm repositions and the two firms locate at their equilibrium points. Although competition adds to variety and increases consumer's surplus, the post entry increase in price may outweight the gains from extra variety and make consumers worse off.
|Item Type:||MPRA Paper|
|Original Title:||Firm entry, product repositioning and welfare|
|Keywords:||Horizontal differentiation, welfare analysis, product repositioning|
|Subjects:||L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets
D - Microeconomics > D4 - Market Structure and Pricing > D43 - Oligopoly and Other Forms of Market Imperfection
D - Microeconomics > D6 - Welfare Economics > D60 - General
|Depositing User:||Eleftherios /E Zacharias|
|Date Deposited:||01. Jun 2009 07:09|
|Last Modified:||12. Feb 2013 23:22|
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