Vertical Differentiated Duopoly Competition Model: An Expanded Analysis Of The Introduction Of Advertising

The fundamental model of duopoly competition in vertical differentiated market has two very important assumptions: consumers' information is complete and their preferences are stable. But in reality, these two assumptions are not valid. The real world is a world of incomplete information; consumers often do not know the existence and price information of the merchandise he wanted to purchase. Their preferences are not natural and permanent unchanged. They will be affected by the environment. The enterprise can transfer information to consumer through informative advertising and can change their preferences through persuasive advertising. Drawing Butters (1977)'s formalization of informative advertising and Bloch and Manceau (1999)'s formalization of persuasive advertising technology, and imitating Tirole (1997) and Bloch and Manceau (1999)'s method to introducing informative advertising and persuasive advertising to Hotelling(1929)'s horizontal differentiation model respectively, we bring informative advertising and persuasive advertising into the model of duopoly competition in vertical differentiated market to research the more realizable duopoly competition in vertical differentiated market.We learn from the analysis of the basic model that the high-quality product's price, demand and profit are higher in equilibrium, and this conclusion remains under incomplete information and changeable preferences. In informative advertising part, we study the degree of vertical differences and the cost of advertising's affection on equilibrium prices, advertising level and profits. The conclusion is: equilibrium prices, advertising level and profits will increase with the increasing of vertical differentiation; equilibrium prices and profits will increase, but equilibrium advertising level will decrease if the cost of advertising...