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How unequal are the gains from trade? This paper develops a structural framework to quantify the consequences of international trade on welfare of consumers across the income distribution, allowing for nonhomothetic demand and endogenous quality choices by firms. Using random coefficients demand estimation techniques, I infer demand and supply parameters, as well as household-specific price indexes for more than 3,000 distinct industries and find the gains from trade to be moderately unequal except in wealthier and small economies. Further, not accounting for endogenous vertical differentiation would overstate the impact of trade on cost-of-living inequality by close to 50%.

When confronted with a new product, consumers often find it difficult to predict how it will perform, and such uncertainty reduces consumers’ willingness to adopt the product. In this paper, we consider a market whereby consumers decide when and which product to buy, given that they know the product quality of the incumbent but are uncertain about that of the entrant. We investigate how consumer uncertainty about product quality affects firms’ behavior-based pricing and customer acquisition and retention dynamics. Using a two-period vertical model, we find that, under high-end encroachment, an increase in consumer uncertainty reduces the entrant’s profit and hurts the incumbent’s profit when the quality differential between the products is relatively small, whereas, under low-end encroachment, increasing uncertainty not only benefits the incumbent but also can favor the entrant. An important implication for entrants is that the marketing activities, which aim to reduce consumer uncertainty about product functionalities, may fail to improve profitability. We also find that the entrant lowers the price for uninformed customers and raises the price for repeat buyers under high-end encroachment but lowers the price for all customers under low-end encroachment. We further examine the subsidy strategy and show that, when the entrant’s product has a significant quality advantage and consumer uncertainty is high but not very high, the optimal strategy for the entrant is to acquire all consumers who do not buy from the incumbent by providing subsidies and to drop the low-valuation customers by means of a high price after their uncertainty is resolved. This paper was accepted by Anandhi Bharadwaj, information systems.

Problem definition: We consider an intermediary’s problem of dynamically matching demand and supply of heterogeneous types in a periodic-review fashion. Specifically, there are two disjoint sets of demand and supply types, and a reward for each possible matching of a demand type and a supply type. In each period, demand and supply of various types arrive in random quantities. The platform decides on the optimal matching policy to maximize the expected total discounted rewards, given that unmatched demand and supply may incur waiting or holding costs, and will be fully or partially carried over to the next period. Academic/practical relevance: The problem is crucial to many intermediaries who manage matchings centrally in a sharing economy. Methodology: We formulate the problem as a dynamic program. We explore the structural properties of the optimal policy and propose heuristic policies. Results: We provide sufficient conditions on matching rewards such that the optimal matching policy follows a priority hierarchy among possible matching pairs. We show that those conditions are satisfied by vertically and unidirectionally horizontally differentiated types, for which quality and distance determine priority, respectively. Managerial implications: The priority property simplifies the matching decision within a period, and the trade-off reduces to a choice between matching in the current period and that in the future. Then the optimal matching policy has a match-down-to structure when considering a specific pair of demand and supply types in the priority hierarchy.

To study channel choice and assortment selection under vertical differentiation, we propose game-theoretic models in a supply chain consisting of a two-product manufacturer and a retailer. The manufacturer can encroach to build an online channel to sell directly to consumers, in addition to selling indirectly via an offline channel operated by the retailer. This dual-channel supply chain incorporates both product competition and channel competition. Product competition exists no matter whether the manufacturer encroaches, because the products compete for same end consumers. Channel competition (i.e., the competition between the online and offline channels) occurs when the manufacturer encroaches. Although incurring channel competition, manufacturer encroachment alleviates product competition, because the dual-channel supply chain can distribute different products via different channels. We find that manufacturer encroachment causes a win-lose situation for the manufacturer and the retailer, and may benefit or harm the supply chain. When the initial product competition is fierce or the disutility of online shopping is trivial, the positive effect of alleviated product competition dominates the negative effect of incurred channel competition, and thus manufacturer encroachment benefits the supply chain. Our extended models show that the main results are robust.

This paper examines the issue of product compatibility in an oligopoly with three multi-product firms. Whereas most of the existing literature focuses on the extreme cases of full compatibility or full incompatibility, we look at asymmetric settings in which some firms make their products compatible with a standard technology and others do not. Our analysis reveals each firm’s individual incentive to adopt the standard, and allows to study a two-stage game in which first each firm chooses its technological regime (compatibility or incompatibility), then price competition occurs given the regime each firm has selected at stage one. When firms are ex ante symmetric, we find that for each firm compatibility weakly dominates incompatibility. In a setting in which a firm’s products have higher quality than its rivals’ products, individual incentives to make products incompatible emerge, first for the firm with higher quality products, then also for the other firms, as the quality difference increases. This paper sheds lights on markets in which some firms adopt the standard technology but other firms use proprietary systems.

On the recent fine-textured coasts located to the northwest (Russia) and southeast (Iran) of the Caspian Sea at altitudes of 25–26 m below sea level, the difference in elemental composition between two coasts as well as the vertical differentiation of elemental composition (18 chemical elements, 48 samples) in soil pits were studied. The soils of both key sites are close in particle size distribution (the average contents of sand, silt and clay were 10%–30%, 60%–74% and 13%–16%, respectively) and pH (7.4–8.8). Soils on the Iranian coast affected by shallow, highly saline groundwater (the water table is 1.5–2.5 m, solute concentration ~100 g/l) have a uniform vertical distribution of most elements except for As, P and Pb. In soils on the Russian coast with deeper and less saline ground water (2.5 m, ~50 g/l), the total content of the majority of elements (Al, As, Ca, Co, Fe, K, Mn, Ni, P, Pb, Sr, Ti, V and Zn) except for Cr, Cu, Mg and Si changes significantly (P value 7. The use of the most stringent international thresholds has shown that the contents of potentially toxic elements on both coasts of Russia and Iran exceed those limits by a factor of 1.5–3.

We consider a vertically differentiated model with two identical countries each having initially one firm. We compare two options: a unique international ecolabel set up by an international authority and two national ecolabels set up non-cooperatively by two national non-governmental authorities. The governments decide then to open or not their economies, then firms choose their environmental qualities and prices. We prove that relative to the case of national ecolabels, the international label lets the global welfare as it is or improves it. However, the improvement is always at the expense of one of the two countries, in which case the international label is not feasible unless the beneficiary country offers a compensation to the aggrieved one.

Viktor Koksharov - Candidate of Sciences in History, Rector, Ural Federal University named after the first President of Russia B.N. Yeltsin. E-mail: v.a.koksharov@urfu.ruDaniil Sandler - Candidate of Sciences in Economics, First Vice Rector for Economics and Strategic Development, Head Researcher, Research Laboratory of University Development Problems, Ural Federal University named after the first President of Russia B.N. Yeltsin. E-mail: d.g.sandler@urfu.ruPavel Kuznetsov - Head of the Center for Monitoring of Science and Education, Senior Lecturer, Department of International Economics and Management, Graduate School of Economics and Management, Ural Federal University named after the first President of Russia B.N. Yeltsin. E-mail: pavel.kuznetcov@urfu.ruAddress: 19 Mira Str., 620002 Yekaterinburg, Russian Federation.Alexander Klyagin - Leading Expert, Laboratory for University Development, National Research University Higher School of Economics. E-mail: aklyagin@hse.ruOleg Leshukov - Head of the Laboratory for University Development, National Research University Higher School of Economics. E-mail: oleshukov@hse.ru (Corresponding author)Address: Bld. 10, 16 Potapovsky Ln, 101000 Moscow, Russian Federation. As an inevitable result of Russia’s higher education policies of the past two decades, new university leaders in and outside of Moscow and St. Petersburg have emerged, and vertical differentiation has increased. Inequality of educational potential has a strong regional dimension, exerting a considerable delayed impact on regional socioeconomic development. Differences in universities’ resources affected their ability to adapt their instructional, research, and administrative processes to change during the pandemic, thus broadening the education and research quality gap in higher education. Some regions may face an increased outflow of youth talent to leading universities or just any colleges based in Moscow and St. Petersburg, which will certainly weaken the socioeconomic growth prospects of Russia’s regions.The pandemic accelerated the debate over this problem and demonstrated readiness of universities for joint efforts. Groundwork was laid for deploying a policy to create a cooperative network of universities and their stakeholders so as to reduce institutional differentiation and promote exchange of experience and competence among universities.This paper investigates into the main characteristics of vertical differentiation in Russian higher education that had been in place when the pandemic broke out and determined whether universities succeeded or failed in switching to distance learning. Furthermore, lockdown measures and their economic impact on different types of universities are analyzed. Finally, we discuss possible avenues and specific considerations for expanding cross-institutional collaboration and engaging stakeholders inuniversity development.

The attitudes of developing countries for intellectual property rights (IPR) regulations and law enforcement are ambiguous. We seek to clarify this issue by structuring a model, simultaneously considering the IPR index and the strength of law enforcement of China in period 1996–2015. Firstly, the government of a developing country always holds the strictest attitude towards law enforcement. Secondary, the growing level of IPR leads to the decrease of the total welfare, but the decline of total welfare slows down. Third, the motivation of maximising total welfare induces the governments of developing countries to strengthen law enforcement. This provides internal motivation for development. The findings of this article show that developing countries have long-term internal motivations to improve their strength of IPR levels and law enforcement.

In today’s digital age, with the aid of the internet and data mining, many firms use vertically differentiated product bundling to influence demand to match up with inventory status, especially in industries with short product life cycles. Despite this practice, there is little understanding on how exactly the inventory dynamics impact the bundling strategy, and, in turn, how the bundling strategy affects the firm's inventory decisions. To fill this gap, we present a dynamic model to analyze the optimal joint replenishment, pricing, and bundling decisions over time. A key enabler of our analysis is a novel demand model that transfers the discrete bundling decision and the corresponding pricing decision into a continuous market share decision. We show that the optimal policy is dictated by a no-order set in each period. For items in this set, we do not place replenishment orders, because these items are overstocked. The rest of the policy parameters -- the order-up-to-levels for the items that we do order, the bundling and pricing decisions, and the bundle assembly quantity -- all depend on the overstock levels. We also characterize how the optimal bundling decision depends on item complementarity, cost structure, inventory levels, demand uncertainty, and supply responsiveness.

In a model a la Mussa and Rosen (1978) in which consumers are loss-averse, I check the robustness of the result obtained by Tanaka (2001) . As he did, I find that the quantity contract is a dominant strategy for both firms. Thus, Cournot is the outcome in equilibrium. Finally, I find that loss aversion in general intensifies competition.

Private labels (PLs), originally introduced by food retailers as low-priced alternatives to national brands, have expanded in recent years in premium market segments. This article examines how the ...

New competitive and environmental challenges have fostered renewed attention towards organizational design. This scenario calls for a significant return to organizational design studies that embrace a holistic approach, especially those focusing on the simultaneous interaction of multiple design elements. Organizational life cycle (OLC) models provide a fitting response to this call. In this paper, we review the organizational design characteristics of five seminal OLC models. We show that according to these OLC models, growth in size—which is described as unavoidable—generates business issues that firms are forced to solve by adopting only one possible organizational configuration, here following a deterministic organizational approach. We challenge this approach and propose conceiving of OLC as an evolutionary process, which calls for a variety of equifinal organizational solutions. We conclude by proposing future research avenues.

Purpose The purpose of this study is to analyze the problem of optimal product line design in marketing channels where consumers are heterogeneous in both horizontal and vertical dimensions. Design/methodology/approach This paper develops a model to evaluate when it is preferable for a firm to extend the product line in a vertical or horizontal direction. Consumers are modeled as being vertically heterogeneous with respect to their valuation of quality and horizontally heterogeneous with respect to their preference on the esthetic component of the product. These model characteristics allow us to consider a broader set of product line extension strategies. By considering both a vertically integrated channel and a decentralized channel, this study investigates how channel structure influences optimal product line design. The problem with supplemental numerical analyses is mathematically analyzed. Findings The analysis shows that a horizontal product line extension strategy that offers the customized product can be used as an alternative to a vertical product line extension strategy. If the fixed cost is not too high, offering the customized product with low quality may be preferred to the quality-based segmentation strategy. Furthermore, the analysis shows that the channel structure is influential as the preference for the horizontal product line extension strategy is more pronounced in the decentralized channel than in the centralized channel. Research limitations/implications The analysis presented in this paper is limited by the consideration of full market coverage. Further research is needed to see how the results can be generalized to the case with partial market coverage. Practical implications The analysis suggests that a firm may consider product customization as part of its product line strategy. Information regarding market characteristics and channel structure is important when deciding on the optimal product line design. Originality/value The model reflects a more realistic marketing strategy and channel structure than previous studies that typically consider product line extension in only one direction and focus on the centralized distribution channel. Combining the standard product line extension and customization strategies also represents an important contribution to the literature. These extensions produce interesting new results and insights into a firm’s optimal product line design strategy.

We study how commitment of entrepreneurs to sustainability practices might effectively improve the social and environmental impact of market competition. To this end we devised a market experiment in which profit maximization and socially and environmentally concerned behavior were both potential goals of producers. Our subject pool included two distinct types of students having different prosocial attitudes. The two types adopted significantly different strategies in the treatment group, where producers could contribute to a positive externality, whereas they behaved similarly in the control group, where the only objective was profit maximization. Subjects who were ex-ante more prosocial chose to produce with more focus on the positive externality than their counterparts. However, they failed to actually deliver a larger social impact as a consequence of the market outcome. We conclude that producers often commit to social responsibility, even though well-meaning conducts do not necessarily beget equally good outcomes.

Why are banks’ asset–liability decisions interdependent, and why do we observe both large and small banks? We introduce convex costs in a model with both horizontal and vertical quality differentiation, finding that, as long as a single bank spends on quality attributes, strategic quality rivalry causes the portfolio decisions of all banks to be interconnected, generating portfolio interdependence regarding choices among assets and liabilities at each bank, including banks that forego vertical quality provision. In addition, diseconomies of scale allow banks to remain profitable at different scales of operations.

We study the effects of quality regulation on market outcomes by exploiting the staggered phase-in of bioequivalence requirements for generic drugs in Chile. We estimate that the number of drugs in the market decreased by 25%, average paid prices increased by 10%, and total sales decreased by 20%. These adverse effects were concentrated among small markets. Our results suggest that the intended effects of quality regulation on price competition through increased (perceived) quality of generics — and therefore reduced vertical differentiation — were overturned by adverse competitive effects arising from the costs of complying with the regulation.

We study the role of vertical differentiation in the adoption of LEED (Leadership in Energy & Environmental Design), a multitier environmental building certification system. Our identification strategy relies on the timing of adoption and shows that builders seek to differentiate from each other by choosing a different certification level from previously certified buildings. A common concern in this framework is that mean-reverting behavior could be mistaken for differentiation. We develop a new method for establishing the importance of strategic interactions based on simulating from a model with independent choice and unobserved heterogeneity, and showing that such a model cannot generate the level of interaction that we observe. Finally, we estimate a model that incorporates both differentiation incentives and correlated market-level unobservables and use our estimates from this model to simulate the impact of reducing the number of LEED tiers from four to two. The simulations indicate that environmental investments depend on the location of the threshold between tiers. This paper was accepted by Bruno Cassiman, business strategy.

A multiproduct incumbent firm faces the threat of entry from another multiproduct (generalist) firm or from single-product (specialist) firms. Assuming that the incumbent offers higher quality products than its rivals, we inquire whether the possibility of bundling by the incumbent is more effective in deterring entry in one setting or the other, and explore how the quality difference affects the comparison. For instance, for relatively high-quality differences the generalist is more vulnerable to bundling than are the specialists; but bundling is a credible action for the incumbent more often against specialists than against the generalist.

Cet article est consacre a la problematique de la differenciation verticale au sein de l’Union europeenne. La plupart des publications sur l’integration differenciee se sont concentrees sur l’analyse de la differenciation horizontale, c’est-a-dire le phenomene selon lequel la validite des regles de l’UE varie d’un Etat membre a l’autre. L’analyse de la differenciation verticale, a savoir pourquoi l’autorite de l’UE varie d’une politique publique a une autre politique, a jusqu’a present ete negligee. Prenant l’espace de liberte, de securite et de justice de l’UE comme cas d’etude, cet article cartographie et discute la dynamique de differenciation verticale et, par consequent, les variations politiques jusqu’a present inexplorees dans ce domaine d’action publique.

Cet article analyse l’effet de plusieurs instruments de politique commerciale sur la Recherche et Developpement (R & D) de produits a travers un modele de duopole Nord-Sud dans lequel une firme du Nord concurrence une firme du Sud par les prix sur les deux marches. La firme du Nord investit en R & D de produits en raison d’un desavantage competitif par rapport a la firme du Sud qui beneficie d’un cout de travail plus faible. Le resultat de la R & D est incertain. Si l’investissement se traduit par un succes, il y a de la differentiation verticale sur les deux marches. Le gouvernement du pays du Nord est le seul a pouvoir mettre en place les instruments suivants : un droit de douane, un quota d’importation ou un standard de qualite. Les resultats montrent que les depenses en R & D de la firme du Nord augmentent avec chacun de ces instruments a l’exception du quota d’importation. L’article fournit egalement une analyse de bien-etre pour comparer les effets de ces mesures. Les resultats des simulations numeriques suggerent que le gouvernement du pays du Nord est incite a mettre en place un droit de douane, excepte lorsque la preference du consommateur pour la qualite du produit est elevee. Dans ce cas, l’instrument privilegie serait le standard de qualite.

Though haggling has been the conventional way for auto retailers to sell cars, the last two decades have witnessed the systematic adoption of no‐haggle prices by many large dealerships, including the largest new‐ and used‐car dealership chains. This paper develops a structural empirical model to estimate sellers' profits under posted price and haggling, and investigates how market conditions affect sellers' optimal pricing formats. The model incorporates a simple class of bargaining mechanisms into a standard random‐coefficient discrete‐choice model. With the extension, the product‐level demand system is estimated using data with only list prices, and the unobserved price discounts are also recovered in the estimation. The counterfactual experiments yield a few interesting findings. First, dealers' adopted pricing formats seem superior to the alternative ones. Second, dealers enjoying larger market power through vertical differentiation and carrying a large number of models are more likely to have posted price as their optimal pricing format.

This paper studies how the type and magnitude of the interaction between quality characteristics determine the nature of the differentiation strategies of firms. The vertical differentiation models with multi-characteristic product preferences consider that the characteristics are independent. We incorporate a non-additive component into a two-dimensional model. Sufficiently high attribute dependence gives rise to maximal differentiation in both qualities: if the qualities are complements, one firm offers the highest quality in both attributes, while the other firm the lowest; on the other hand, if the qualities are substitutes, each firm specializes in one of the qualities. The usual outcome with maximal differentiation in one quality dimension and minimal in the other is achieved if there is low or no attribute dependence. In our model, the magnitude of attribute dependence determines whether differentiation relaxes or intensifies subsequent price competition. Some examples from the banking sector are presented to illustrate the model.

With the accessibility of customers’ purchase history and the development of data analytics, firms that have a better understanding of customer behaviours might charge different prices to their rep...

This paper presents an infinite horizon dynamic model in which two firms compete in a market vertically differentiated by the qualities of their products and consumers have heterogeneous preferences for quality. Given the product qualities offered, the firms engage in price competition that segments the market. In each period each firm can spend on product innovation that if successful increases the quality of its product. Three types of Markov perfect equilibria are identified. A running–coasting equilibrium exhibits increasing quality dominance with one firm undertaking innovation and the other coasting to free ride on the innovation by the first firm. The firm that coasts can have the larger dynamic payoff, so quality dominance does not imply payoff dominance. A second is a leap‐frog equilibrium in which the trailing firm undertakes innovation to leap into the lead. The trailing firm never innovates solely to narrow the gap with the leader, so catch up strategies are never used. In the third both firms undertake innovation, but if both have innovation successes, product differentiation remains the same and profits are reduced by the cost of innovation. The rivalry between Intel and AMD in microprocessors for personal computers provides a motivating example.

Within the vertically differentiated German university system, the Humboldtian ideal of the unity of research and teaching can no longer be taken for granted. We argue that the organizational academic profession actively pursues the erosion of the unity of research and teaching in their social partnership with the state, trading autonomy for proof of efficient public research and/or teaching services. The results of the 2018 Academic Profession in Knowledge Societies study show that the evolution of research policy at large universities and Excellence Universities in Germany has led to a focus on journal publication outputs and increasing third-party funding. Academics at Excellence and large universities have a strong preference for research over teaching. In spite of a lower teaching workload, academics at Excellence Universities teach more in bachelor courses compared to academics at large universities. Especially small universities are at risk of becoming teaching-oriented universities., This research was funded by the German Federal Ministry of Education and Research (Bundesministerium für Bildung und Forschung; grant number M522200).

This study examines the macroeconomic determinants of exports, taking quality into account through vertical differentiation and using data on Portuguese Douro wines. Based on a gravity model from 2006 to 2015 and covering a range of 192 potential trade partners, estimations show that quality influences export performance. However, quality differences are not assimilated in the same way in all international markets, resulting in an export surplus of the best categories of wine to some world regions (West Europe and AngloSaxon countries) and a correspondingly export deficit to other regions (Middle East, North Africa, East Europe and Central Asia).

We consider the spatial competition between two traditional physical (or offline) retailers and an Internet (or online) retailer where the efficiency of the latter differs from that of the former. We assume that consumers are heterogeneous across two dimensions: (1) the costs of traveling to either of the offline retailers; and (2) the costs of purchasing from the online retailer. Both dimensions depend on the spatial location of consumers and are independent of each other. We show that the online retailer maximizes its profit at an intermediate level of the consumer disutility of online purchase when its efficiency is low.

Plant productivity is partly dependent on soil fertility ,w hich is why it is important to kno wt he distribution of the chemical and morphological properties of the soil. The study was conducted at an experimental site located on as teep forested slope planted with conifers. Consequently ,p rior to the study of variations in soil and vegetation characteristics over time, we analysed the chemical and morphological properties along the slope. Eight pits were dug and sampled by horizon. Root density ,b ulk density and stone content measurements were performed as well as the analysis of the soil chemical properties (pH, K, Mg, Na ,C aa nd Pc ontent). The results confirm the significance of vertical differentiation as one move sa long the profile.

In a vertical differentiation model, we study a market where consumers, depending on their level of environmental consciousness, value the greenness of the product they consume and are distributed according to a Kumaraswamy distribution. Three scenarios are studied: only one firm takes some green measures and firms compete upon prices, only one firm takes some green measures, and this firm acts as the leader of the price competition, and finally, both firms choose their level of greenness and compete upon their location and price. The results suggest that as consumers become more environmentally conscious, the marginal consumer and the greener firm’s location move to the right. In contrast, the less green firm’s response is non-monotonic. In fact, when the two firms choose their location along with their prices, the latter firm chooses to produce a less green product in response to more environmentally conscious consumers. In the extreme case where all consumers are fully environmentally conscious, the latter firm produces a brown product and sells it at a price equal to its marginal cost. In this case, the greener firm’s price and location choices make the consumers indifferent between the two products. These results could explain why despite all the improvements in the consumers’ environmental consciousness, brown (in its general term) products are still widely produced and consumed, even by environmentally conscious consumers.

This paper analyses the monopolist's production and pricing decisions on two vertically diffe-rentiated versions of a product in the presence of network externality. We show that offering only the higher-quality version of the product is the optimal strategy when negative externality exists and the utility from joint purchase is not large. If both versions are provided, the monopolist will charge a monopoly price for each version to induce separate purchases if these two versions are too close substitutes. Moreover, in the equilibrium with joint purchases, with an increase in externality or the utility from a joint purchase, the prices of both versions increase. In addition, with an in-crease in network externality, the equilibrium region for separate purchases first increases and then decreases.

Not necessarily. I consider two firms that compete both on the research market and on the product market. Assuming the product market outcome is ambiguous, i.e., uncertainty is described by multiple distribution of outcomes, I show that an increase in firms' ambiguity aversion increases the ex ante likelihood that they invest in R&D. An increase in their risk aversion on the other hand decreases innovation. The result holds when the innovation has a business-stealing effect as in a Cournot duopoly with vertical differentiation. The key intuition is that ambiguity aversion exacerbates the competitive threat whereas risk aversion diminishes the profit incentive to invest. In addition to showing that an increase in ambiguity aversion leads to more projects being pursued, I show that an increase in ambiguity aversion can lead to an increase in investment for incremental projects. In the case of more radical projects, an increase in ambiguity aversion can, but not necessarily, lead to lower investment in equilibrium. Overall, ambiguity aversion has a positive effect on most innovative projects but can sometimes have a negative effect on some of the more radical, game-changing ones.

This paper studies the effect of introducing a new vertical differentiation strategy, paying for an upgrade to a premium product after purchasing the base product, on the price dispersion of the base product arising from existing price discrimination strategies. In particular, we examine how a major U.S. airline’s price dispersion in the coach cabin changes after introducing the option to upgrade to a new type of premium economy seating within the coach cabin. We first provide a theoretical analysis that highlights two competing pressures that the new premium economy seating upgrades created on coach class prices. On the one hand, the airline benefits from lowering its prices because by allowing more customers to purchase in the first place, it increases the probability of selling upgrades (admission effect). On the other hand, for some customers, the value of flying with the airline increases because of the upgrade availability, therefore the airline may find it optimal to increase its prices (valuation effect). In the second part of the paper, we conduct an empirical investigation of the impact of upgrade introduction on coach class prices, based on a proprietary transaction-level data set from a major U.S. airline company. The empirical analysis tests the main predictions of our theoretical model and examines further nuances. The results show that the introduction of the premium economy seating upgrades is associated with an increase in the price dispersion and revenues in the coach class, the admission effect is stronger than the valuation effect on the low end of the price distribution, and the opposite is true on the high end of the price distribution. Finally, we discuss implications of our results for firm revenues and consumer welfare. This paper was accepted by Serguei Netessine, operations management.

We consider the spatial competition between two traditional physical (or offline) retailers and an Internet (or online) retailer where the efficiency of the latter differs from that of the former. We assume consumers are heterogeneous across two dimensions: (i) the costs of traveling to either of the offline retailers and (ii) the costs of purchasing from the online retailer. Both dimensions depend on the spatial location of consumers and are independent of each other. We show that the online retailer maximizes its profit at an intermediate level of the consumer disutility of online purchase when its efficiency is low.

Empirical evidence from the gasoline market suggests that prices and markups for regular gasoline are higher in stations offering both premium and regular compared to stations without premium. Also...

In this paper, we modify the analysis of Schubert (2017), who found low‐quality advantage arising from vertical differentiation. Here, we relax the assumption of a sufficiently high reservation utility (so that consumers will always buy the good) to include the case in which they can refrain from buying the good. We find an explicit solution to profit functions, with the result that low‐quality advantage disappears.

This note considers cartel stability when the cartelized products are vertically differentiated. If market shares are maintained at pre-collusive levels, then the firm with the lowest competitive price-cost margin has the strongest incentive to deviate from the collusive agreement. The lowest-quality supplier has the tightest incentive constraint when the difference in unit production costs is sufficiently small., Comment: 17 pages, including 3 additional Appendices

The main objective of the study is to explore the patterns in the Russian exporters' prices behavior depending on the characteristics of the importing country. Theoretical models of the heterogeneous trade theory suggest two main mechanisms for the emergence of sustainable differences in prices between different export directions - quality differences and price discrimination. The presented estimates on the Russian detailed customs statistical data for 2004-2015 indicate that Russian export prices are on average higher when goods shipped to richer, more remote countries and countries with larger markets. These regularities are driven mostly by the quality selection, to a lesser extent - by the price discrimination. Moreover, the discovered mechanisms are most pronounced in the behavior of export prices of differentiated goods. The results of the study suggest that the competitiveness of Russian firms is mostly related to product quality and improving access of the Russian firms to high-quality components can be considered as one of the possible ways to expand the presence of Russian manufacturers in the world markets.

This article considers three situations when versioned information products introduce sequentially, then compares vertical differences and pricing strategies. The result shows that three equilibriums exist in the different sales orders under the vertical product differentiation. Price of high-versioned product will be highest when firm provides high-versioned product first then low-versioned product. It is the best strategy for covering the market and maximizing profits. For providing low-versioned product first then high-versioned product, the price of high-versioned product and the total market demands are affected by the waiting cost threshold. In addition, increasing of network externality will cause the increasing of the profit, price and demand of high-versioned product, but the demand for low-versioned product will be reduced.

We investigate whether, in spite of the existence of cross‐market network externalities, platform competition can lead to segmentation of the two sides of the market served by the platforms. We address this question in the context of competition between two equity crowdfunding platforms that connect startups looking for capital with prospective investors. Given the heterogeneity in the populations of startups and investors in terms of the riskiness of the former population and the degree of risk aversion of the latter population, we investigate whether there exists an equilibrium where the two populations are segmented to ensure an improved match between them. We find that the segmenting equilibrium can arise only when compatibility in terms of their risk profiles is of high importance to both populations, and compatibility is significantly more important than the size of the network externality considered by startups. Segmentation is likely to improve the welfare of both populations when the basic benefit from any kind of match is relatively high.

An increasing number of firms are simultaneously offering consumers products for sale and for per-use rental services. Typically, the products offered in per-use rental services are different from those offered for sale. For example, automobiles offered in Daimler’s Car2Go program are “Smart” cars, which have a smaller size than the typical automobiles sold to consumers. Such a difference, which is objectively measurable and captured by quality, is called a vertical differentiation. This study investigates the optimal pricing problem for per-use rental services and sales, and reveals how per-use rental services interplay with sales when vertical differentiation exists. The optimal solution is unique and determined by a model that uses a marginal renter and a marginal buyer as decision variables rather than the prices of per-use rental services and sales. The vertical differentiation significantly influences a firm’s potential profitability. When the vertical differentiation falls into a certain interval, the potential profitability from per-use rental services is higher than that from sales, which explains why the per-use rental business model is increasing in popularity. Finally, the results show that offering products with a relatively high (low) quality in per-use rental services (sales) is highly profitable for product categories with a strong pooling effect or when there are high firm-side benefits from ownership. This finding enriches the existing literature by providing novel perspectives on ownership and the pooling effect, and these insights are illustrated through a numerical example.

We study in this paper the effect of the type of information provided by an ecolabel. For this purpose, in the framework of a model of vertical differentiation, we compare the effects of a partial information label (Type I) and a complete information label (Type III) on firms' profits, industry profit, consumers' surplus, environmental damage and social welfare. A partial information label indicates that the environmental quality of a good exceeds some given threshold. The authority issuing a partial information label chooses its labeling criteria while maximizing the social welfare. A complete information label indicates the exact environmental quality chosen by firms. We prove that while a partial information label always improves the social welfare and deteriorates the green firm profit compared to a complete information label, the comparison between the two types of ecolabel in terms of the brown firm's profit, the industry's profit, the consumers surplus and the environment depend in a non-obvious way on the marginal cost of quality and on the environmental sensitivity to quality.

Manufacturers frequently resist heavy discounting of their products by retailers, especially when they are used as so-called loss leaders. Since low prices should increase demand and manufacturers could simply refuse to fund deep price promotions, such resistance is puzzling at first sight. We explain this phenomenon in a model in which price promotions cause shoppers to potentially reassess the relative importance of quality and price, as they evaluate these attributes relative to a market-wide reference point. With deep discounting, quality can become relatively less important, eroding brand value and the bargaining position of brand manufacturers. This reduces their profits and potentially even leads to a delisting of their products. Linking price promotions to increased one-stop shopping and more intense retail competition, our theory also contributes to the explanation of the rise of store brands.

This paper describes how process and product innovations respond to cost and demand changes. In the present model firms simultaneously choose process and product innovations within a model of vertical differentiation and uncovered market. We show that the outcome is unique both in monopoly and in the duopoly. In these outcomes, a demand increase (decrease) enhances (depresses) both process and product innovation, while an increase (decrease) in production costs stimulates (depresses) process innovation but lowers (increases) product one. The insight for these results relies on the scale effect of innovation. Our result can be placed in the ongoing debate on complementarity and substitutability of process and product innovation.

We study how quality uncertainty among consumers affects price competition in the presence of network effects. Our main result is that quality uncertainty has non-monotonic effects on firms’ price setting behavior. Prices and industry profit is first falling, then increasing, in quality uncertainty. In addition we show that quality uncertainty can force a high quality provider to be aggressive to the point where its price in the first period is below that of a low quality provider. We also analyse the incentives for compatibility under quality uncertainty, and find that when quality uncertainty is sufficiently high, compatibility may be used as a means of softening price competition.

The generation, formation, and development of debris flow are closely related to the vertical climate, vegetation, soil, lithology and topography of the mountain area. Taking in the upper reaches of Min River (the Upper Min River) as the study area, combined with GIS and RS technology, the Geo-detector (GEO) method was used to quantitatively analyze the respective influence of 9 factors on debris flow occurrence. We identify from a list of 5 variables that explain 53.92%% of the total variance. Maximum daily rainfall and slope are recognized as the primary driver (39.56%) of the spatiotemporal variability of debris flow activity. Interaction detector indicates that the interaction between the vertical differentiation factors of the mountainous areas in the study area is nonlinear enhancement. Risk detector shows that the debris flow accumulation area and propagation area in the Upper Min River are mainly distributed in the arid valleys of subtropical and warm temperate zones. The study results of this paper will enrich the scientific basis of prevention and reduction of debris flow hazards.