Firm entry, product repositioning and welfare

Arbeitspapier

We show that the entry of a second firm in a horizontally differentiated market (ala Hotelling) may harm consumers as prices increase and consumer's surplus possibly decrease. We first derive the price and the consumer's surplus of a monopoly which is located at the center of the market. When a second firm enters the market the first firm repositions and the two firms locate at their equilibrium points. Although competition adds to variety and increases consumer's surplus, the post entry increase in price may outweight the gains from extra variety and make consumers worse off.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: EERI Research Paper Series ; No. 17/2009

Classification and Topics

• Classification: Wirtschaft ; Oligopoly and Other Imperfect Markets ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Welfare Economics: General
• Subject: Horizontal di¤erentiation ; welfare analysis ; product repositioning

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Zacharias, Eleftherios
• Event: Veröffentlichung
• (who): Economics and Econometrics Research Institute (EERI)
• (where): Brussels
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/142549
• Last update: 10.03.2025, 11:41 AM CET