Corporate cannibalism in an oligopolistic market

Abstract

In this paper, we consider whether a firm that produces high-quality products chooses to produce lower-quality products. We find that when there is only one monopoly in the market, the monopoly will only produce a single-quality product. When there are two firms in the market, one produces high-quality products and the other one produces low-quality products. When certain conditions are met, the firm that produces high-quality products has an incentive to produce products of medium or lower quality, thus profiting. The production of new products by a firm will bring about the improvement of consumer surplus and social welfare.