Competition and welfare in oligopolistic markets with differentiated products

This dissertation provides empirical and theoretical investigations of olipolists that produce differentiated products. The focus of the empirical part is the DVD market, which exhibits network effects between consumers of DVD players and producers of DVD titles. The second part of the dissertation is concentrated on markets where firms have to inform consumers about their horizontally differentiated products. The aim of both analyses is to show that oligopolistic markets may produce socially undesirable outcomes.; The dissertation contains two essays: (1) "Diffusion a New Product under Network Effects: The Case of the U.S. DVD Market." Indirect network effects arise when the benefit of using a product increases with the availability of complementary goods. This essay uses product level data to estimate network effects between hardware (DVD players) and software (DVD titles) in the DVD market. We are able to observe monthly sales and prices of all DVD player models in addition to monthly releases of new DVD titles. In our structural model of hardware demand, the identification of the network effect comes from the difference in software availability over time and across two different formats: DVD and VHS. According to the estimates, there is strong evidence that there exists two-way causation between software supply and hardware demand. The counterfactual experiments suggest that there is an incentive for integration among hardware firms. Additionally, the increase in concentration may benefit consumers, as they will enjoy increased software availability. (2) "Targeted Advertising in Oligopolistic Markets with Asymmetric Information." The ability to target advertising raises interesting questions on strategic interaction in competitive markets. We develop a model where two firms that produce horizontally differentiated products select the group of consumers who are informed about their product to receive information. The analysis differs from previous literature on targeted advertising as it allows for uncertainty regarding costs of production. As a consequence, we are able to achieve the result of overlapping targets of advertising. Another result of the model is that social welfare may not always increase in the efficiency of production. An increase in the probability of a cost reduction might lead to some parts of the market remaining unserved.