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Vertical product differentiation and advertising.

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<mark>Journal publication date</mark>02/2004
<mark>Journal</mark>International Journal of the Economics of Business
Issue number1
Number of pages17
Pages (from-to)37-53
Publication StatusPublished
<mark>Original language</mark>English


A duopoly model is developed in which firms’ strategic variables include brand quality, the number of distinct market segments to enter and price. Informative advertising is used to overcome consumer ignorance about brands. In contrast to many existing models in which firms engage in price competition, the subgame perfect equilibria of the game are not characterised by the production of vertically differentiated products. Further, whilst the firms typically produce identical high quality products, in some circumstances the production of homogeneous low quality brands can be an equilibrium strategy.

Bibliographic note

The final, definitive version of this article has been published in the Journal, International Journal of the Economics of Business, 11 (1), 2004, © Informa Plc