Market coverage and the nature of product differentiation : a note

Abstract

In this note, we analyze the equilibrium outcomes of pricing games with product differentiation in relation with the extent of market coverage. It is a received idea in the IO literature that the horizontal and vertical models of product differentiation are almost formally equivalent. We show that this idea turns out to be wrong when the full market coverage assumption is relaxed. We then argue that there exist two fundamentally different classes of address-models of differentiation, although their difference is not perfectly captured by the standard horizontal/vertical typologyprice competition, product differentiation