Intra-brand competition in a differentiated oligopoly

In this paper we consider a differentiated oligopoly with two product varieties that are supplied by two groups of firms. After computing the Cournot solution of the game, we study its sensitivity to different sources of competition, namely the degree of product substitutability and market composition. Market composition can change either via new firms entering one industry or via firms switching production techniques, thus modifying the intensity of intra-brand competition. After studying the welfare consequences of an intensification of competition, we identify the equilibrium market composition when firms are driven by profit considerations. All the results are expressed in terms of the degree of product substitutability and of what we define “weighted relative efficiency” (WRE), which is a parameter combining both firm characteristics and market conditions.