DP10324 Product Line Design

We characterize the product line choice and pricing of a monopolist as the upper envelope of net marginal revenue curves to the individual product demand functions. The equilibrium product varieties to include in a product line are those yielding the highest upper envelope. In a central case (corresponding to a generalized vertical differentiation framework), the equilibrium range of varieties is exactly the same as the first-best socially optimal range. These upper envelope and first-best optimal range findings extend to a symmetric Cournot oligopoly as well.