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Mix and Match Compatibility with Vertical Product Dimensions
Michael A. Einhorn
The RAND Journal of Economics
Vol. 23, No. 4 (Winter, 1992), pp. 535-547
Stable URL: http://www.jstor.org/stable/2555904
Page Count: 13
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This article considers a duopoly in which each firm produces two components of a system. If the components are compatible, consumers may "mix and match" the firms' components. The system components and consumer tastes are assumed to differ with regard to vertical characteristics. In the model, one firm may be the quality leader in one or both characteristics. Moreover, a consumer's taste for the quality of one component may be perfectly correlated with, or independent of, his taste for the quality of the other component. It is shown that in all cases the sum of each producer's component prices is (weakly) higher if the components are compatible. The same is true of producer profits.
The RAND Journal of Economics © 1992 RAND Corporation