Credence, goods and product differentiation

This paper analyses price competition between two firms producing horizontally and vertically differentiated goods. These are assumed to be credence goods, as consumers can hardly ascertain the quality of the commodities. We provide sufficient conditions for the existence of a unique price equilibrium and we characterize it. To illustrate the model, we adapt it to represent a newspapers' industry with two outlets, when the population of readers have preferences both on the political stance of the newspapers and on the accuracy of news they dispatch.