Consumers Pay More When Firms Imitate Rather Than Differentiate Products
This study looks at why new companies in a group of few big businesses might choose to copy what a big company is selling rather than make something different. They found that the costs of making items different can change what type of competition happens. Sometimes, when companies compete by setting prices, they end up with different products. But, when they compete by setting quantities, they might all end up selling the same thing. Also, in some cases, prices in the price-setting competition might be higher than in the quantity-setting one. If the costs of making products different are low enough, the total profit made by all the companies might be the same or more in the price-setting competition compared to the quantity-setting one.