Product differentiation and market exclusion

Wu Gang and Zhu Yong

Abstract

The game model is founded on the product differentiation, and in the system consisting of two upstream enterprises and two downstream enterprises, the market exclusion effect of the vertical integral enterprises towards the non-integral enterprises is studied. The research results indicate that after vertical integration the intermediate product price ascends and causes the market exclusion to the non-integral enterprises. The greater the product differentiation is, the greater the degree of the market exclusion is; after vertical integration the production of integral enterprises increase while the downstream independent enterprises decrease with descending profits.