Price and Nonprice Competition in Oligopoly With Scaling of Characteristics

Abstract

In most models that include both price and quality competition, characteristics are assumed to be cardinally measurable and, therefore, capable of immediate incorporation as variables in analytical and simulation analysis. This paper deals initially with the difficult task of “scaling” characteristics which are qualities that are not at the present time directly “measurable” in the meaning of the theory of measurement or with attributes which can be measured only in a nominal 0-1 manner. The procedure in this paper moves from scaling at the product or brand level to study competition without tacit collusion to price-nonprice competition in a collusive context, and from general functional forms in closed analysis to specific forms in simulation runs.