AMU - Aix Marseille Université (Aix-Marseille Université
Jardins du Pharo
58 Boulevard Charles Livon
13284 Marseille cedex 7 - France)
Abstract : The labor market is introduced into the standard vertical differentiation model, linking increasingly the quality of the product and the effort necessary for workers to produce it. Surprisingly, when two firms compete on the product market but are monopolies on the labor market, at equilibrium they choose not to differentiate their products, which is different from the result obtained with standard vertical differentiation models.