Competition, Incomplete Discrimination and Versioning

K. Diaw, J. Pouyet

Research output: Working paperDiscussion paperOther research output

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Abstract

Producers of software viewers commonly other basic versions of their products for free while more sophisticated versions are highly priced, thereby providing less attractive or lower valuations consumers with larger utility levels.We give some foundations to this outcome called versioning.We consider a duopoly in which firms other di erentiated goods to a representative consumer; the buyer has distinct marginal valuations for the quality of the products; each producer perfectly knows the consumers taste for its own product, but remains uninformed about its taste for the rivals product.When each product cannot be purchased in isolation of the other one, a phenomenon of endogenous preferences arises since a firms o er to the consumer depends on the information unknown by the rival firm.Multiple equilibria emerge and the consumers rent increases with his valuation for one product and decreases with the valuation for the other product.By contrast, when each product can be purchased in isolation of the other one, at the unique equilibrium consumers with larger valuations for a product earn higher rents.The analysis is undertaken under two alternative pricing policies: in the partially-discriminatory case, producers make use of the known information only; in the fully-discriminatory case, each producer second-degree price discriminates the consumer according to the unknown information.We show that, sometimes, firms prefer partial to full discrimination, i.e., strategic ignorance of consumers tastes for the rival brand softens competition.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages27
Volume2004-69
Publication statusPublished - 2004

Publication series

NameCentER Discussion Paper
Volume2004-69

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Versioning
Discrimination
Isolation
Rent
Endogenous preferences
Multiple equilibria
Pricing policy
Software
Ignorance
Duopoly
Buyers
Representative consumer

Keywords

  • competition
  • prices

Cite this

Diaw, K., & Pouyet, J. (2004). Competition, Incomplete Discrimination and Versioning. (CentER Discussion Paper; Vol. 2004-69). Tilburg: Microeconomics.
Diaw, K. ; Pouyet, J. / Competition, Incomplete Discrimination and Versioning. Tilburg : Microeconomics, 2004. (CentER Discussion Paper).
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Diaw, K & Pouyet, J 2004 'Competition, Incomplete Discrimination and Versioning' CentER Discussion Paper, vol. 2004-69, Microeconomics, Tilburg.

Competition, Incomplete Discrimination and Versioning. / Diaw, K.; Pouyet, J.

Tilburg : Microeconomics, 2004. (CentER Discussion Paper; Vol. 2004-69).

Research output: Working paperDiscussion paperOther research output

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Diaw K, Pouyet J. Competition, Incomplete Discrimination and Versioning. Tilburg: Microeconomics. 2004. (CentER Discussion Paper).