On July 17, 2024, Prof. CHEN Rong from University of California, Davis gave a lecture on “Vertical Competition with Common Attributes” in the School of Business, hosted by Prof. WU Yifan.

    In competitive markets, vertically differentiated products usually have common attributes provided by third parties (e.g., location value, infrastructure, or technology). Based on this background, Prof. CHEN Rong examined how common attributes affect individual attributes and pricing of high- and low-quality firms, thereby affecting market competition and social welfare. First, the study sorts out three significant effects of common attributes on vertical competition, identifying that common attributes have a greater effect on low-quality firms than on high-quality firms. Second, the study finds that more desirable common attributes have different effects on vertical competition in different product markets.

    Prof. CHEN Rong pointed out that for information products, high-quality firms increase individual attributes in response to more desirable common attributes, but low-quality firms decrease individual attributes. For industrial products, both firms tend to decrease individual attributes. In equilibrium, the more desirable common attributes weaken the dominance of high-quality firms for the information product, while the weakening effect on the industrial product is negligible. For both product types, most of the advantages gained from desirable common attributes are passed on to the final consumer.

    In addition, when the infrastructure of a retail platform constitutes a common attribute for vertically differentiated suppliers, Prof. CHEN Rong examines its commission policy and identifies a “top-down” effect through which the commission policy affects higher-quality firms more than lower-quality firms in order to moderate the impact of the common attribute. The study found that the more advanced infrastructure prompted the platforms to implement higher commissions, which resulted in both firms offering poorer individual attributes.

    During the exchange session, there were enthusiastic questions and a warm atmosphere among the students and faculty. Prof. CHEN Rong carefully answered and discussed the research design, model construction and other issues raised by the students and faculty.