Beginning with Tiebout (1956), numerous studies have argued that we should expect to see differences in public services among localities as a result of people “voting with their feet”. Here, we consider differentiation in public services as a way of reducing competition among localities (cities). If cities finance their public services with a property tax that generates “tax competition”, we fi...

This paper analyses price competition between two firms producing horizontally and vertically differentiated goods. These are assumed to be credence goods, as consumers can hardly ascertain the quality of the commodities. We provide sufficient conditions for the existence of a unique price equilibrium and we characterize it. To illustrate the model, we adapt it to represent a newspapers’ indust...

This paper provides the first combined theoretical and empirical analysis of the impact of private school entry on private schools’ strategic choices of quality, addressing the concern that school competition can harm poorer students. I develop a model where schools select their quality when (1) the match between a school and a student affects test scores, and (2) wealthier students’ enrollment...

In neoclassical theory, product differentiation provides consumers with a variety of different products within a particular industry, rather than a homogeneous product that characterizes purely competitive markets. The welfare-enhancing benefit of product differentiation is the greater variety of products available to consumers, which comes at the cost of a higher average total cost of producti...

Previous studies of the cable television industry have focused on the effects of deregulation and competition on cable service prices. These studies use either the "most popular" tier or the "lowest-priced" tier when comparing prices of different cable systems. However, these tiers often represent a different type of cable service so that previous empirical results based on the assumption that ...

b. The industry for individual-serving juice boxes is dominated by a few very large firms (for example, Minute Maid, Welch’s, and Kool Aid), and there are significant barriers to entry, in part because of the large costs (for example, advertising) involved in gaining any market share of the national market. Products are, however, differentiated—if perhaps only in the minds of consumers. Because...

The purpose of this study is to analyse theoretically the implications of applying the procedure for market delineation used by competition authorities in the EU and in the US. Specifically, we investigate the circumstances under which the procedure will lead to a positive relation between actual market power and the assessed degree of market dominance. Another objective is to test whether the ...

This paper provides a simple model of endogenous horizontal product differentiation that has two important implications. First, the model can explain the “empirical Bertrand paradox” – the failure to observe homogeneous product Bertrand oligopoly. If product differentiation is possible at reasonable cost, then Bertrand firms would always invest in product differentiation. Using a quadratic util...