Product Lines and Price Discrimination in Markets with Information Frictions Articles uri icon

publication date

  • April 2021

International Standard Serial Number (ISSN)

  • 0025-1909

Electronic International Standard Serial Number (EISSN)

  • 1526-5501


  • A well-known principle in economics is that firms differentiate their product
    offerings in order to relax competition. However, in this paper we show that information
    frictions can invalidate this principle. We build a duopolistic competition model of seconddegree price discrimination with information frictions in which (i) an equilibrium always
    exists with overlapping product qualities, whereas (ii) an equilibrium with nonoverlapping product qualities exists only if both information frictions and the cost of providing
    high quality are sufficiently small. As a consequence, reasons other than an attempt to soften
    competition should explain why firms in some cases carry nonoverlapping product lines.


  • Economics


  • product strategy; pricing strategy; second-degree price discrimination; search; vertical differentiation; retail competition