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- Title
Quality Uncertainty as Resolution of the Bertrand Paradox.
- Authors
Tasnádi, Attila; Smith, Trenton G.; Hanks, Andrew S.
- Abstract
It is well-known that product differentiation eliminates the Bertrand paradox (i.e. marginal cost pricing under duopoly). While differentiation is often justified with reference to the consumer's 'preference for variety', the conditions under which such a preference is likely to arise are rarely considered. We investigate this question in a setting in which uncertainty about product quality can endogenously generate either convex or non-convex preferences. We show that even when two goods are ex ante homogeneous, quality uncertainty can eliminate the Bertrand paradox.
- Subjects
PRODUCT differentiation; UNCERTAINTY; CONSUMER preferences; DIRECT costing; PRODUCT quality
- Publication
Pacific Economic Review, 2012, Vol 17, Issue 5, p687
- ISSN
1361-374X
- Publication type
Article
- DOI
10.1111/1468-0106.12005