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Vertical differentiation and collusion: pruning or proliferation?

Jean Gabszewicz, Jean and Marini, Marco A. and Tarola, Ornella (2016): Vertical differentiation and collusion: pruning or proliferation? Forthcoming in: Research in Economics , Vol. 71, No. 1, 2017 (1 March 2017)

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Abstract

In this paper, we tackle the dilemma of pruning versus proliferation in a vertically differentiated oligopoly under the assumption that some firms collude and control both the range of variants for sale and their corresponding prices, likewise a multi-product firm. We analyse whether pruning emerges and, if so, a fighting brand is marketed. We find that it is always more profitable for colluding firms to adopt a pricing strategy such that some variants are withdrawn from the market. Under pruning, these firms commercialize a fighting brand only when facing competitors in a low-end market.

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