Vertical Product Differentiation in the Lab : Impact of Consumers’ Preferences Dispersion

This paper revisits a vertically differentiated duopoly game where producers first simultaneously set qualities and then simultaneously set prices. We theoretically and experimentally explore the impact of different consumers’ preferences dispersion levels. We find that firms suboptimally differentiate their products, specially when consumers’ preferences dispersion is high and that, in both cases and in contrast with our theoretical prediction, there is a low-quality firm advantage