Discussion paper

DP1268 Are Markets More Competitive if Commodities are Closer Substitutes?

Equilibrium prices of the variants of a differentiated commodity are shown to increase if the variants become closer substitutes, under a set of circumstances, which is by no means pathological. Rather, the underlying argument has a bearing on market prices, whenever a potential buyer does not know with certainty the characteristics of the variants for sale before inspecting them, and therefore must incur some information costs before the final purchase decision.

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Citation

Schulz, N (1995), ‘DP1268 Are Markets More Competitive if Commodities are Closer Substitutes?‘, CEPR Discussion Paper No. 1268. CEPR Press, Paris & London. https://cepr.org/publications/dp1268