economies of scale and barriers to entry dixit has recently presented a model in which established firms select capacity to discourage entry but cannot employ threats they would not rationally execute after entry entry deterrence in a slight modification of this model involves the classical limit price output under linear or concave demand however the capital cost of a firm of minimum efficient scale is an upper bound on the present value of the monopoly profit stream that can be shielded from entry it is argued that this suggests the general unimportance of entry barriers erected by scale economies

a competitive analysis of fail fast shakeout and uncertainty about consumer tastes abstract contemporary business strategy advocates fail fast the practice of launching a product early before the resolution of uncertainty about how product characteristics matter to consumers we consider how uncertainty about consumer preferences can contribute to shakeout when moving from the infant stage of an industry when this uncertainty is large to the mature stage of an industry when this uncertainty is small we find that consistent with the empirical literature due to firms uncertainty about consumers preferences there is excessive entry initially and on average positive shakeout in the number of firms in the market in the mature phase of the industry the paper also presents a new way to model uncertain preferences in product differentiation models that may prove useful in other applications

seasonality in the consumer response to milk advertising with implications for milk promotion policy permitting seasonal variation in the goodwill effect in measuring the impact of fluid milk advertising on milk sales in new york city improved the statistical significance of the estimating equation the allocation of generic advertising dollars according to optimization rules during the period 1979 81 would have resulted in a 9 percent increase in returns to dairymen supplying the new york city market harmonic variables are used to account for seasonality a pascal distribution is used to account for the decay structure and goodwill elasticities are estimated to indicate the impact of generic advertising on sales

on the faustmann solution to the forest management problem abstract this paper is concerned with optimal solutions to the forest management problem when future utilities are undiscounted by examining asymptotic properties of such solutions we find that i if the utility function is linear then the faustmann periodic solution is optimal ii if the utility function is increasing and strictly concave an optimal solution converges to the maximum sustained yield solution which we characterize as a golden rule these results may be viewed as a possible resolution to the debate in forestry economics about what constitutes an optimal policy in forest management

trade and industrial location with heterogeneous labor we show in the context of a new economic geography model that when labor is heterogenous trade liberalization may lead to industrial agglomeration and inter regional trade labor heterogeneity gives local monopoly power tofirms but also introduces variations in the quality of the job match matches are likely to be better when there are more fi rms and workers in the local market giving rise to an agglomeration force which can offset the forces against trade costs and the erosion of monopoly power we derive analytically a robust agglomeration equilibrium and illustrate its properties with numerical simulations

how much does the market value an improvement in a product attribute a firm contemplating improvements to its product attributes would be interested in the dollar value the market attaches to any potential product modification in this paper we derive a measure of market value such that the comparison of the measure against the incremental unit cost of the attribute improvement is key in deciding whether or not the attribute improvement is profitable competition from other brands the potential for market expansion and heterogeneity in customer preference structures are explicitly modeled using the multinomial logit framework the analysis yields a closed form expression for the market s value for an attribute improvement mvai a key result we obtain is that customers should be differentially weighted based on their probability of purchasing the firm s product in particular customers who exhibit a very high or very low probability of choosing the firm s product should receive less weight in detemining mvai because the probability of choice varies across products the answer to the question of how much the market values an improvement depends on which firm is asking the question it is shown that customers whose utilities have a greater random component should be weighted less furthermore the measure developed is robust to the influence of outliers in the sample an empirical illustration of the mvai measure in the context of a new product development study is provided the study illustrates the advantages of the proposed measure over currently used approaches and explores the possibility of competitive price reactions

wage competition with heterogeneous workers and firms we study imperfect competition in the labor market when both workers and firms are heterogeneous when firms cannot observe workers skill firms pay workers equal wages but workers absorb training costs when firms can identify worker types firms pay different net wages to different workers voters select the level of general education that is financed by a lump sum tax workers are on average better off when firms can observe workers skill for a given level of general human capital but the median voter prefers a higher level of general human capital when firms cannot observe worker types

mix and match compatibility with vertical product dimensions this article considers a duopoly in which each firm produces two components of a system if the components are compatible consumers may mix and match the firms components the system components and consumer tastes are assumed to differ with regard to vertical characteristics in the model one firm may be the quality leader in one or both characteristics moreover a consumer s taste for the quality of one component may be perfectly correlated with or independent of his taste for the quality of the other component it is shown that in all cases the sum of each producer s component prices is weakly higher if the components are compatible the same is true of producer profits

pioneers marketing mix reactions to entry in different competitive game structures theoretical analysis and empirical illustration pioneers marketing mix reactions to new entries are recognized as important determinants of the outcome of pioneerlate mover competition particularly in price inelastic markets such as those for pharmaceuticals cigarettes and luxury goods managers in such markets are interested in better understanding when to accommodate i e decrease marketing spending or retaliate i e increase spending in nonprice marketing variables such as advertising and salesforce in addition the reallocation of marketing resources toward advertising indicated by a pull strategy or salesforce indicated by a push strategy upon entry is strategically important to managers previous theoretical research shows that pioneers should retaliate in both static and growing markets results from empirical research are mixed in that they support both accommodation and retaliation in growing markets empirical research also shows that a pioneer accommodates retaliates with its low high elasticity marketing mix variable contrary to prior research however some pioneers have successfully accommodated late movers in growing markets and in some cases have accommodated with their stronger marketing mix variables and also retaliated with their weaker marketing mix variables for example bristol myers squibb s capoten accommodated the entry of merck s vasotec in the growing ace inhibitors market with its more powerful variable salesforce but also retaliated with its less potent variable advertising moreover not much is known about how the pioneer s marketing mix allocation should change i e toward pull vs push strategies in response to new entries we seek to better explain the pioneer s reactions and predict its shift in marketing mix allocation upon new entry we note that prior research s predictions on the pioneer s reactions are based on a limited number of key factors such as product market characteristics and the pioneer s elasticities prior to a new entry in this paper we extend previous research by adding two other critical factors namely the impact of new entry on the pioneer s elasticities and margin and different competitive game structures to better predict and explain the pioneer s reactions we develop analytical results on the pioneer s reactions in price advertising and salesforce in different competitive games both nash and different leader follower games in these results we identify the conditions under which the pioneer should accommodate or retaliate or not react to a late mover s entry and shift its marketing mix allocation toward pull versus push strategies we empirically illustrate some of the analytical results using data from a pharmaceutical category we show that a pioneer who adopts a follower leader role with respect to a marketing mix variable in a static growing market and witnesses a decrease an increase in own elasticity and margin upon a new entry generally should accommodate retaliate in that variable however we are also able to show that there are cases where these general reactions don t hold thus for example it is possible for a pioneer to find it optimal to accommodate in a growing market or to retaliate even when its elasticity decreases upon entry depending on the combination of competitive game the impact of entry on elasticities and margin and market growth in this way our results point to the fact that it is necessary to look not only at one factor at a time but instead examine the combination of all the factors we explain the empirical support for both accommodation and retaliation in growing markets by showing that the pioneer should accommodate retaliate a late mover with its competitively low high elasticity marketing mix variable competitively high low elasticity variables are not are likely to be significantly reduced by a new entry in the anticipated competitive game with regard to reallocation of the pioneer s marketing mix we show that the change in the pioneer s marketing mix allocation should follow the change in the relative marketing mix effectiveness after new entry this in turn depends on the structure of competition the impact of the late mover on its elasticities and margins and the competitor s marketing mix elasticities in addition to own elasticities the results can guide managers on how factors such as competitive structure changes in elasticities and margin and market growth impact the pioneer s marketing mix decisions and on when to accommodate retaliate or not react to a late mover s entry and shift marketing mix allocation toward pull versus push strategies

skill mismatch and unemployment we consider a finite number of heterogeneous firms which compete imperfectly for heterogeneous workers we show that unemployment may arise in equilibrium because of job mismatch and firms market power

competitive positioning in markets with nonuniform preferences we investigate the nature of competitive equilibrium for brands competing in a multi attribute product space when consumer preferences for product attributes follow nonuniform distributions we establish subgame perfect equilibria in a two stage game where firms choose positions in the first stage and prices in the second stage two types of entry scenarios are investigated in the first the number of brands is given exogenously and all of them choose positions simultaneously in the second scenario firms enter in sequence and the early entrants can choose strategies to deter the entry of later entrants we find the equilibria for two three and four brands for consumer preferences that follow a beta distribution nonuniform distributions result in equilibrium configurations that are substantially different from those obtained for uniform consumer distributions in the two brands case for sufficiently concentrated distributions we find asymmetric position equilibria with one firm at the corner of the market and one firm at an interior position in the case of three brands for sufficiently concentrated preferences we find symmetric equilibria that do not yield maximal differentiation we also establish an equilibrium for the case of four competing brands in addition we characterize entry deterring positioning strategies and examine how they vary with the distribution of consumer preferences

local labor markets job matching and urban location we present a new way of modeling local labor markets by linking the space of workers skills and the physical space of cities the key lesson of our analysis is that firms exploit workers in these two spaces by setting wages that are below the competitive level the degree of monopsony power depends on the elasticity of the firm s labor pool which is inversely related to the costs workers incur in commuting and acquiring skills our analysis thus shows how socioeconomic ghettos emerge as workers with poor skill matches are also those who incur the highest commuting costs

the political economy of branching restrictions and deposit insurance a model of monopolistic competition among small and large banks this article suggests that the introduction of bank branching restrictions and federal deposit insurance in the united states likely was motivated by political considerations specifically we argue that these restrictions were instituted for the benefit of the small unit banks that were unable to compete effectively with large multiunit banks we analyze this political hypothesis in two steps first we use a model of monopolistic competition between small and large banks to examine gains to the former group from the introduction of branching restrictions and governmentsponsored deposit insurance we then find strong evidence for the political hypothesis by examining the voting record of congress

the politics of infrastructure investment the role of product market competition abstract in spatial competition public infrastructure plays a crucial role in determining product market outcomes in our model consideration of infrastructure s impact on the product market drives the preferences of consumers in their dual role as voter taxpayers the spatial heterogeneity of consumers produces conflicting political interests and in many cases inefficient outcomes however across both exogenous and endogenous market environments product market competition consistently leads to higher levels of publicly funded infrastructure than monopoly collusion furthermore competition s boost to the popular support for infrastructure investment is often excessive while monopoly leads to underinvestment

perceptual position and competitive brand strategy in a two dimensional two brand market brand positioning and competitive reaction are important determinants of optimal brand strategy analyses of brand strategy have focused on optimal pricing and positioning issues using either empirical models of perceptions and preferences game theory to examine competition or both however the important issues of advertising and distribution strategy have not been fully addressed this paper analyzes competition and strategy between two brands that compete in a two dimensional market with advertising and distribution spending in addition to prices and product positions in particular for a unimodal taste distribution of ideal points we show how optimal competitive nash equilibrium marketing mix levels and profits depend on the positions of both brands brands can reposition to increase profit and under what conditions these strategies imply minimum versus maximum differentiation positioning equilibria and how the intensity of advertising and distribution competition affect equilibrium brand positions

nash equilibrium in duopoly with products defined by two characteristics this article analyzes the analogue ofhotellingls duopoly model when products are dejned by two characteristics using the assumptions of the original model of hotelling we show that demand and projt functions are continuous for a wide class of utility functions when the utilityfunction is linear in the euclidean distance in the space of characteristics a noncooperative equilibrium in prices exists for all symmetric locations ofjirms this is in contrast to the result in the one characteristic model where a noncooperative equilibrium exists only when products are very diferent the noncooperative equilibria are calculated and fully characterized in contrast with the one dimensional model of hotelling where equilibrium prices were constant irrespective of distance of symmetric locations here equilibrium prices tend to zero as the distance between products approaches zero

assortment planning and inventory decisions under a locational choice model we consider a single period assortment planning and inventory management problem for a retailer using a locational choice model to represent consumer demand we first determine the optimal variety product location and inventory decisions under static substitution and show that the optimal assortment consists of products equally spaced out such that there is no substitution among them regardless of the distribution of consumer preferences the optimal solution can be such that some customers prefer not to buy any product in the assortment and such that the most popular product is not offered we then obtain bounds on profit when customers dynamically substitute using the static substitution for the lower bound and a retailer controlled substitution for the upper bound we thus define two heuristics to solve the problem under dynamic substitution and numerically evaluate their performance this analysis shows the value of modeling dynamic substitution and identifies conditions in which the static substitution solution serves as a good approximation

product and price competition in a duopoly this paper examines the role of consumer preferences costs and price competition in determining the competitive product strategy of a firm in the model studied here there are two identical firms competing on product quality and price they face consumers who prefer a higher quality product to a lower quality product but differ in how much they are willing to pay for quality the consumers can also choose a substitute if they don t like the product price offerings of the two firms for the firms a higher quality product costs more to produce than a lower quality product the paper shows that the equilibrium strategy for each firm should be to differentiate its product from its competitor with the firm choosing the higher quality choosing the higher margin as well this differentiation however is not efficient that is it is possible to choose two other products and offer them at prices that cover their marginal cost and still satisfy consumers needs better in the aggregate a monopolist by contrast would differentiate his product line efficiently this suggests that cannibalization has different effects on product strategy than competition the paper also shows that if one firm enters the market first then it can defend itself from later entrants and gain a first mover advantage by preempting the most desirable product position

technical note existence and uniqueness of price equilibria in defender this note provides a formal proof that for the defender model with uniformly distributed tastes the nash price equilibria exist and for a given set of positions that they are unique we also show that the profit function is well behaved continuous and quasi concave and that the maximum occurs on the concave portion of the curve

generic fluid milk advertising demand expansion and supply response the case of new york city a transfer function was used to estimate the fluid milk demand equation of new york city the consumption effect of a generic fluid milk advertising program in the city was found to be positive and statistically significant the resulting higher blend price of milk was found to have a negligible effect on the subsequent supply of milk though being successful in generating positive returns on advertising it was found that a 35 reduction in the advertising expenditures would have been optimal in the marginal sense

sequential location games we study location games where market entry is costly and occurs sequentially and where consumers are nonuniformly distributed over the unit interval we show that for certain classes of densities including monotone and under some additional restrictions hump shaped and u shaped ones equilibrium locations can be determined independently of when they are occupied our analysis reveals a number of peculiarities of the uniform distribution extensions of the model allow for price competition and advertisement in media markets winner take all competition trade offs between profits in the short and the long run and firms operating multiple outlets

deconstructing the pioneer s advantage examining vintage effects and consumer valuations of quality and variety several studies have demonstrated an order of entry effect on market share suggesting that pioneers outperform later entrants however other research has pointed out the limitations of these studies and found evidence that many pioneers fail or have low market share given this background the purpose of this research is to understand the conditions under which pioneers are more likely and also less likely to have an advantage we propose a game theoretic model that includes important sources of pioneer advantages as well as disadvantages specifically we incorporate a pioneer advantage due to preemption in markets with heterogeneous tastes in addition we incorporate a potential pioneer disadvantage due to technology vintage effects where later entrants utilizing improved technology can have lower costs and higher quality the model allows us to evaluate the extent of vintage effects necessary to overcome a pioneer s advantage key relationships are found between the magnitude of the pioneer advantage or disadvantage and consumer valuations of product attributes e g variety and quality we empirically validate the model with vintage effect data in 36 product categories and measures of consumer valuations of product variety and quality for 12 of these 36 categories the results show that pioneers do better in product categories wherevariety is more important and worse in categories where productquality is more important pioneers in categories with high vintage effects are shown to have lower market shares and higher failure rates similar results appear when analyzing persistence of market leadership over time further validating our model s major implications we also present two case studies that illustrate key elements of the model

modeling competitive pricing and market share anatomy of a decision support system even with today s high emphasis on management decision support systems relatively little has been published on the motivations tribulations and post mortems that generally accompany the development of such systems this paper reports in a mixture of narrative style and more formal model exposition how a computerized decision support system for optimal price determination was developed implemented and finally applied to a broad range of industry problems

quantity leadership and social inefficiency a game of simultaneous free entry and sequential output choices is analyzed firms enter simultaneously in stage 1 by paying a fixed cost and they choose output levels sequentially in subsequent stages at the subgame perfect equilibrium of the game the production level of a firm is decreasing with the order of the firm in the decision making the firm that is the last to choose output produces the same amount as a typical firm in the standard symmetric simultaneous moves cournot game moreover industry output and market price are identical in the sequential and the symmetric cournot games it follows that in the sequential game there are fewer active firms and higher total surplus than in the standard symmetric cournot game strategic asymmetry results in higher concentration and higher total surplus without an increase in price

quality choice trade policy and firm incentives quality choice is examined in a duopoly with one foreign and one domestic firm where consumers have similar preferences for quality but different preferences for brands firms make quality commitments prior to choosing price and policy intervention assumes several forms the policy conclusions depend on whether firms face set up costs in raising product quality in the absence of set up costs both domestic and foreign firms make socially optimal quality choices in the presence of set up costs the foreign firm and often the domestic firm sets quality below the socially optimal level incomplete information alters these conclusions however copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

demand uncertainty mismatch and un employment we consider a finite number of firms which compete imperfectly for heterogeneous workers firms produce a homogeneous good sold on a competitive market and face demand induced price fluctuations it is then shown that unemployment may arise in equilibrium because of both uncertainty of product demand and job mismatch unemployment does not arise however when the variance of the demand shock is small enough and or the cost of mismatch is sufficiently low full employment always prevails when there is free entry hence unemployment may persist as long as the incumbent firms choose their skill requirements to protect their supernormal profits

the economics of product variety a survey demand for variety may arise from a taste for diversity in individual consumption and or from diversity in tastes even when each consumer chooses a single variant the full degree of variety potentially demanded will not in general be supplied because scale economies even to a small degree mean that the potential welfare or revenue gain from greater variety must be balanced against the lower unit production costs with fewer variants the economics of product variety consists essentially in analysing the effect of this balance in different situations and comparing the degree of product variety for different market structures with each other and with the optimum the survey commences with the work on market structures with single product firms generalized monopolistic competition tracing modern developments in both the chamberlinian and hotelling traditions the latter has been particularly fruitful due to the expansion of the original locational ideas into virtual spaces in product characteristics the emphasis in recent work on product variety has been on multiproduct firms in both monopolistic and oligopolistic structures including strategic market preemption although most work has been in a full information context there have been advances in product variety under imperfect information either by consumers to properties of the firms products or firms as to consumers demands

measuring the effects of generic dairy advertising in a multi market equilibrium we develop a multi market equilibrium displacement model that allows demand linkages across downstream product markets and supply linkages through the common use of a raw commodity as the key input applying the model to the dairy sector we find that the effectiveness of producer funded advertising depends on the demand relationships across dairy product markets cross price and cross advertising elasticities as well as the reallocation of milk toward the advertised market we show that the previous literature which ignores the horizontal linkages highlighted here tends to overstate the effectiveness of generic commodity promotion for dairy and thus results in too much advertising

the role of spatial demand on outlet location and pricing abstract in this article the authors consider the problem of outlet pricing and location in the context of unobserved spatial demand the analysis constitutes a scenario in which capacity constrained firms set prices conditional on their location demand and costs this enables firms to develop maps of latent demand patterns across the market in which they compete the analysis further suggests locations for additional outlets and the resultant equilibrium effect on profits and prices using bayesian spatial statistics the authors apply their model to seven years of data on apartment location and prices in roanoke va they find that spatial covariation in demand is material in outlet choice the 95 spatial decay in demand extends 3 6 miles in a region that measures slightly more than 9 5 miles they also find that capacity constraints can cost complexes upward of 100 per apartment as they predict price elasticities and costs are biased downward when spatial covariance in demand is ignored costs a

aggregation and imperfect competition on the existence of equilibrium we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result provides general conditions under which there exists a pure strategy price equilibrium for any number of firms producing any set of products this includes products with multi dimen sional attributes in addition to the proof of existence we provide conditions for uniqueness our analysis covers location models the characteristics approach and probabilistic choice together in a unified framework to prove existence we employ aggregation theorems due to prekopa 1971 and borell 1975 our companion paper caplin and nalebuff 1991 introduces these theorems and develops the application to super majority voting rules we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result is that there exists a pure strategy price equilibrium for any number of firms producing any set of products in addition to the proof of existence we provide conditions for uniqueness our model both unites diverse strands of the earlier literature and opens up uncharted areas for future analysis in particular we expand the traditional one dimensional framework to allow for multi dimen sional product differentiation our approach involves twin restrictions on consumer preferences one on individuals preferences the other on the distribution of preferences across society these are generalizations of the restrictions supporting 64 majority rule presented in caplin and nalebuff 1988 to prove existence we apply a new technique of aggregation this technique is valuable in a variety of other problems in the companion paper we use the aggregation result to generalize our earlier work on 64 majority rule and to characterize the relationship between the distribution of human capital and the distribution of income caplin and nalebuff 1991 there are additional applications in statistics and in search theory we begin with a brief review of the early literature on imperfect competition describing in more detail the existence problem and previous solutions section 3 presents our twin assumptions and shows that they cover many standard cases in section 4 we introduce the aggregation theorem and use it in the analysis of demand functions the proof of existence of equilibrium is in section

on hotelling s competition with non uniform customer distributions abstract hotelling s competition in a two stage location price game is examined with increasing densities of consumers towards the centre it is shown that there is a range of rather even distributions for which firms locate at opposite ends of the market as the distribution becomes more concentrated duopolists will tend to move inside the market

the great industry gamble market structure dynamics as a survival contest industry dynamics are studied as an endogenous tournament with infinite horizon and stochastic entry in each period firms investments determine their probability of surviving into the next period this generates a survival contest which fuels market structure dynamics while the evolution of market structure constantly redefines the contest more concentrated markets endogenously generate less profit rivals that are more difficult to outlive and more entry the unique steady state distribution exhibits ongoing turbulence correlated exit and entry rates and shakeouts the model s predictions fit empirical findings in markets where firms trade off profits for smaller risk of failure e g banking

uneven spacing in free entry equilibrium for spatial product differentiation abstract this paper shows that the spacing of firms can be very uneven in free entry equilibrium in a familiar model of spatial competition in which potential entrants have sophisticated expectations about post entry prices

new product introduction and incumbent response strategies their interrelationship and the role of multimarket contact in this article the author studies the determinants of both new product introduction and incumbent response strategies in a single integrated framework building on previous research in strategic

optimal temporal policies in fluid milk advertising this study develops an approach to obtain optimal temporal advertising strategies when consumers response to advertising is asymmetric using this approach optimal strategies for generic fluid milk advertising in new york city are determined results indicate that pulsed advertising policies are significantly more effective in increasing demand than a uniform advertising policy sensitivity analyses show that the optimal advertising policies are insensitive to reasonable variations in interest rates and the inclusion of milk demand seasonality in the model also less asymmetric responses to advertising are found to result in shorter optimal pulsing cycles and reduced intensity of advertising pulses copyright 2000 oxford university press

when prices hardly matter incomplete insurance contracts and markets for repair goods abstract this paper looks at markets characterized by the fact that the demand side is insured in these markets a consumer purchases a good to compensate consequences of unfavorable events such as an accident or an illness insurance policies in most lines of insurance base indemnity on the insured s actual expenses i e the insured would be partially or completely reimbursed when purchasing certain goods in this setting we discuss the interaction between insurance and repair markets by focusing on one hand upon the development of prices and the structure of markets with insured consumers and on the other hand the resulting backlash on optimal insurance contracting we show that even in the absence of ex post moral hazard the extension of insurance coverage will lead to an increase in prices as well as to a socially undesirable increase in the number of repair service suppliers if repair markets are imperfect

multinomial logit market share models equilibrium characteristics and strategic implications we specify and analyze the conditions under which the mnl market share models are appropriate for equilibrium analysis our results show that a linear price response function as is often used in empirical research in conjunction with the typical concavity assumed in a large range of marketing response functions would yield an interior equilibrium solution we then consider the optimal reactions on pricing and marketing spending to entry and potential market expansion in the context of the mnl models we demonstrate that the entry of a new brand evokes a decrease in the equilibrium prices of the existing brands as a defensive reaction this is true in both an expanding market as well as a fixed market however while new entry into a fixed market would trigger the incumbents to lower the marketing expenditure we show that firms tend to raise marketing activities as they experience market expansion consequently there exist distinct possibilities that marketing efforts for the existing brands increase in view of entry in an expanding market further managerial and marketing implications for endogeneity of the number of firms are explored

sophisticated entry in a model of spatial competition we analyze free entry equilibrium in a model of spatial competition in which locations of established firms are fixed and entrants profit expectations are rational our most interesting results concern large economies economies in which the number of firms is arbitrarily large when the average cost function is u shaped free entry equilibrium is unique socially optimal and characterized by zero profit in contract when there are no diseconomies of scale even large economies are stubbornly imperfect firms can earn substantial pure profit and free entry equilibrium is neither unique nor socially optimal

desirability of compatibility in the absence of network externalities i compare the incentives firms have to produce individual components compatible with components of other manufacturers instead of systems composed of components that are incompatible with components of competing manufacturers i show that even in the absence of positive consumption externalities network externalities prices and profits will be higher in the regime of compatibility equilibrium total surplus could be higher in either regime both regimes overprovide variety compared to the surplus maximizing solution in today s environment many products are complex specified by a long array of characteristics part of the decision of the firm is to choose if it should break this long array of features into two or more smaller parts and produce the products corresponding to the smaller arrays instead of the product that embodies the full array we will call the products that correspond to these smaller arrays components and the product that corresponds to the full array a system note that components are by their definition complements components produced by different manufacturers are compatible if it is feasible for the consumers to combine them costlessly into a working system in this paper we will assume that there are two components which make up a system we will discuss competition under full compatibility when components produced by all firms are compatible with each other and under incompatibility when no components produced by different firms are compatible and no hybrid systems can exist 2 assuming availability of the same

price competition under mixed multinomial logit demand functions in this paper we postulate a general class of price competition models with mixed multinomial logit demand functions under affine cost functions in these models the market is partitioned into a finite set of market segments we characterize the equilibrium behavior of this class of models in the case where each product in the market is sold by a separate independent firm we identify a simple and very broadly satisfied condition under which a pure nash equilibrium exists and the set of nash equilibria coincides with the solutions of the system of first order condition equations a property of essential importance to empirical studies this condition specifies that in every market segment each firm captures less than 50 of the potential customer population when pricing at a specific level that under the condition is an upper bound for a rational price choice for the firm irrespective of the competitors prices we show that under a somewhat stronger but still broadly satisfied version of the abov

oligopsony vertical integration and output substitution welfare effects in u s pulpwood markets oligopsonistic commodity markets can induce upstream vertical integration by the input demanders the associated price distortion can also induce output substitution by the commod ity s suppliers these phenomena are considered in the context of pulpwood markets in the u s the estimated welfare effects of an oligopsony distortion indicate relatively small deadweight losses but con siderable wealth transfers from open market pro ducers to integrated pulpwood processing firms correcting the distortion would have little effect on aggregate output levels from the forest sector but would alter the composition of output between in dustry and nonindustry sources jel q23 l13

resource allocation to defensive marketing and manufacturing strategies abstract in this paper we investigate the coordinated use of marketing and manufacturing strategies to formulate a defensive business strategy for an incumbent firm upon market entry while defensive marketing strategies have been researched extensively little has been done on defensive manufacturing strategies and even less on coordinating these two we propose a formulation for the joint formation of a defensive strategy by the marketing and production functions under budget constraint considerations the incumbent firm may allocate its resourcesto advertising and distribution expenditures as well as to manufacturing investments to reduce the unit production cost the incumbent firm has also the option of simply allocating all of its resources purely to advertising and distribution we show that while there exist cases where the optimal reaction to entry involves investments in manufacturing improvements there are also cases where defense is in marketing strategies alone we identify the market conditions that promote such reactions to entry and also provide sensitivity analysis

classical turnpike theory and the economics of forestry classical turnpike theory as originally conceived by samuelson pertains to optimal growth theory over a large but finite time horizon with given initial and terminal stocks in this paper we present two turnpike results in the context of the economics of forestry with given initial and terminal forest configurations our results depart from the general theory in that they concern a transitional production set which does not satisfy the assumptions of inaction and free disposal and rely on a recently discovered non interiority assumption on concave not necessarily differentiable benefit functions that implies and is implied by the asymptotic convergence of good programs

spatial competition with heterogeneous firms i model endogenous horizontal and vertical product differentiation with arbitrarily many heterogeneous firms firms are asymmetric in that they differ in their marginal costs i prove that under an equilibrium refinement all economically relevant firm outcomes are uniquely determined across all strict subgame perfect nash equilibria there are two central results first a firm s price market share and profit are independent of its neighbors marginal costs conditional on the average marginal cost in the market second more productive firms are more isolated all else equal in particular the distance between two firms is strictly decreasing in their average marginal cost

the principle of minimum differentiation revisited abstract hotelling s model of differentiated products is examined and modified so that consumers have relatively low reservation prices for the differentiated products the problem of existence of a nash equilibrium in prices in a duopoly with given products is analysed when the reservation price is relatively low a nash equilibrium in prices exists for a larger range of products than when the reservation price is infinite next i examine product competition with instantaneous adjustment to the nash equilibrium prices of the previous game firms competing in a nash fashion have tendencies to move away from each other and try to achieve local monopolistic positions this is in sharp contrast with the acclaimed principle of minimum differentiation of the original model of hotelling of high reservation price where firms clustered in the product space

note competitive price and positioning strategies brand positioning and brand pricing are important strategic decisions for marketing managers such decisions are interrelated and depend upon competitive brand positions and prices however any unilateral decisions may encourage repositioning and price adjustment by competitors thus leading to either new market equilibria or a price positioning war this paper examines such price and positioning decisions in a competitive environment by extending the defender consumer model to more complex equilibria we assume that the brands are already in the market and that positions are sticky in the sense that brands cannot leapfrog one another among the insights for such incumbent brands are if prices are symmetric and held constant firms seek to reposition toward the center of the market but price advantages by central firms can mediate that central tendency such that an equilibrium exists with positive profits if brand positions are held constant the nash equilibria for prices exist and are unique and category profits the sum of brand profits are maximized for maximum brand differentiation for two and three brand markets the subgame perfect nash equilibrium where positioning decisions are made with foresight on the price equilibria causes firms to unilaterally seek maximum brand differentiation but for four or more brands greater foresight and or cooperation appears necessary to reach the point of maximum brand differentiation these results apply where the defender consumer model is an exact description of consumer response and where the competitive reaction assumptions hold in any empirical situation such forces might be softened resulting in differentiated but not maximally differentiated brands

competition and integration among complements and network market structure this article analyzes the competition and integration among complementary products that can be combined to create composite goods or systems the model generalizes the cournot duopoly complements model to the case in which there are multiple brands of compatible components it analyzes equilibrium prices for a variety of organizational and market structures that differ in their degree of competition and integration the model applies to a variety of product networks including automatic teller machines real estate multiple listing services and airlines crs as well as to nonnetwork markets of compatible components such as computer cpus and peripherals hardware and software and long distance and local telephone services copyright 1992 by blackwell publishing ltd

symmetric equilibrium existence and optimality in differentiated product markets abstract equilibrium existence and optimality are analysed in a market for products differentiated by their variety a game of three stages is analysed firms enter in the first stage choose varieties in the second stage and choose prices in the third stage the existence of subgame perfect equilibria is established at equilibrium products are symmetrically located in the space of characteristics and are offered at equal prices the surplus maximizing solution is characterized and it is shown that surplus maximizing product diversity is lower than the equilibrium one

on equilibrium cycles and normal forests in optimal harvesting of tree vintages abstract a normal forest that has an even land allocation between tree vintages has traditionally been taken as a desirable long run goal in forestry in contrast the presently favored economic hypothesis suggests that under positive discounting the optimal forest vintage structure typically evolves to a cycle without convergence toward the normal forest this paper proves the existence of the cyclical solution and its global stability properties using elementary methods the occurrence of cycles in forest harvesting is given a resource economics interpretation a numerical example that was previously analyzed incorrectly is clarified in the existing vintage model forest land has no competing uses in an extension with competitive land use the stationary cycles are shown to be replaced by a saddle point path with damped oscillations and convergence toward the normal forest

commentary defensive marketing strategies for every new product and service entrant there are usually many incumbents who must defend their positions in the market hence defensive strategy is as least as critical as new product strategy our 1983 article argued that defensive strategy critically depends on the distribution of buyer preferences and the position of the new entrant relative to the position of the incumbent in a multidimensional attribute space since the appearance of our 1983 article in marketing science research in defensive strategy has progressed in both prescriptive and descriptive directions subsequent research on defensive strategy has also addressed empirical methodological theoretical and substantive issues today defensive strategy is more important than ever with shorter new product life cycles persistent service innovation remarkable technological change global competition and the invention of new channels of distributions

equilibrium uniqueness in oligopoly games with strategic complements i show the uniqueness of equilibrium for a class of oligopoly models with strategic complements product differentiation models are considered in which the contraction mapping theorem cannot necessarily be applied

chapter 4 competitive marketing strategies game theoretic models publisher summary this chapter reviews the key developments in the understanding of competitive marketing strategies product price advertising and distribution competition are all addressed while the emphasis is on models the chapter surveys the empirical literature as well there is a significant amount of empirical work to report but the ratio of theoretical to empirical work is nevertheless unpleasantly large much progress has been made in the last ten years or so in the study of competitive marketing strategies most of this chapter has been theoretical using simple models of firm and consumer behavior these models serve the function of demonstrating rigorously the existence of certain effects factors which need to be considered in analyzing real world competition

evaluating generic milk promotion effectiveness with an imperfect competition model a framework is proposed for incorporating the degree of market competition in evaluating milk promotion effectiveness the imperfect competition model allows simultaneity in price and quantity with an endogenous fluid milk premium the model s usefulness is demonstrated with japanese generic milk promotion data results show a conventional exogenous price or exogenous premium model will underestimate returns to milk promotion

a prelaunch diffusion model for evaluating market defense strategies this paper describes the development and application of a marketing model to help set an incumbent s defensive marketing strategy prior to a new competitor s launch the management problem addressed is to assess the market share impact of a new entrant in the residential australian long distance telephone call market and determine the factors that would influence its dynamics and ultimate market appeal the paper uses probability flow models to provide a framework to generate forecasts and assess the determinants of share loss we develop models at two levels of complexity to give both simple robust forecasts and more detailed diagnostic analysis of the effect of marketing actions the models are calibrated prior to the new entrant s launch enabling preemptive marketing strategies to be put in place by the defending company the equilibrium level of consideration of the new entrant was driven by respondents strength of relationship with the defender and inertia while trial was more price based continued use of the defender depends on both service factors and price the rate at which share loss eventuates is negatively related to the defender s perceived responsiveness saving money being the only reason to switch and risk aversion prelaunch model forecasts validated six months after launch using both aggregate monthly sales data and detailed tracking surveys are shown to closely follow the actual evolution of the market the paper provides a closed form multistate model of the new entrant s diffusion a methodology for the prelaunch calibration of dynamic models in practice and insights into defensive strategies for existing companies facing new entrants

industrial loans and market structure abstract based on the observation that financing is one of the main obstacles to create new firms this paper deals with the interactions between the market structure of both the banking sector and the borrowing industries we consider that firms installation costs are financed by means of industrial loans from specialized banks with endogenous entry in banking activity as well as in the borrowing industry we find that a natural oligopoly emerges in both sectors if the entry cost in the industrial sector is small enough relative to the banks entry cost

some theoretical results on the economics of forestry pose the value of timber from a tree is related to its age a according to a function ft and a discount rate of p 0 is given at what age should a tree or a stand of trees of the same vintage be cut down to maximize the present value of the timber content the answer to this question proposed by jevons 1871 wicksell 1911 and others can be stated as follows cut the tree at an age at which the increase in value of timber content of the standing tree over an additional unit time interval equals the interest that can be earned over an additional unit time interval if the revenue from cutting the tree is invested at an interest rate p from the point of view of the economics of forestry the above solution and indeed the above question is missing something more precisely the solution is based on the assumption that the land on which the stand of trees was growing is not used after the trees are cut down consequently it fails to encompass an important aspect of the forest rotation problem once trees are removed from a given area the land is available for new forest growth clearly the longer the felling of the existing forest is delayed the longer it takes to acquire revenues from future harvests the opportunity cost of utilizing the forest site for the existing stand of trees must be considered taking this reforestation aspect into account faustmann 1849 noted that the question to be asked is the following assuming that one had an empty tract of land and one were interested in maximizing the discounted sum of the value of timber content of trees harvested timber being evaluated at a constant price what pattern of planting and harvesting trees should one follow

product differentiation and endogenous disutility abstract this paper models the choice of degree of focus or general purposeness available to firms by endogenizing transportation costs in an address model of horizontal differentiation the formulation is in three stages entry focus or design competition and price competition the strategic effect of product design is analyzed the equilibrium level of general purposeness is shown to depend critically on neighbor exclusivity the latter and more generally market structure and product diversity are shown to depend on the cost of producing general purpose products if general purposeness is free to design and produce only two firms enter the market and set large transportation costs underproviding product diversity

defensive marketing strategies this paper analyzes how a firm should adjust its marketing expenditures and its price to defend its position in an existing market from attack by a competitive new product our focus is to provide usable managerial recommendations on the strategy of response in particular we show that if products can be represented by their position in a multiattribute space consumers are heterogeneous and maximize utility and awareness advertising and distribution can be summarized by response functions then for the profit maximizing firm it is optimal to decrease awareness advertising it is optimal to decrease the distribution budget unless the new product can be kept out of the market a price increase may be optimal and even under the optimal strategy profits decrease as a result of the competitive new product furthermore if the consumer tastes are uniformly distributed across the spectrum a price decrease increases defensive profits it is optimal at the margin to improve product quality in the direction of the defending product s strength and it is optimal at the margin to reposition by advertising in the same direction in addition we provide practical procedures to estimate 1 the distribution of consumer tastes and 2 the position of the new product in perceptual space from sales data and knowledge of the percent of consumers who are aware of the new product and find it available competitive diagnostics such as the angle of attack are introduced to help the defending manager this article was originally published in marketing science volume 2 issue 4 pages 319 360 in 1983

sequential product positioning under differential costs this paper examines the product positioning decisions of firms that enter a market sequentially and that have potentially different cost structures it shows that if the first mover knows the second mover to have a lower production cost it positions away from the most attractive location in the market further the larger the second mover s cost advantage the farther away the first mover positions from the most attractive location the paper also models uncertainty in the first mover s mind about the later entrant s cost structure and shows that an increase in this uncertainty in the sense of mean preserving spread also makes the first mover position farther from the most attractive location in the market overall this paper suggests that unless the first entrant in a market is certain that the later entrant will not have a superior cost structure it may be better off leaving the best position in the market vacant and having a niche or fringe product

on the economics of forest vintages abstract we study optimal harvesting of a multiple vintage forest system under discounting discrete time and strictly concave utility it is shown that at the optimal stationary state timber harvest may evolve cyclically over time the cycles occur because in the forest vintage model space is measured continuously and time in discrete units cycles disappear as period length moves toward zero when the faustmann rotation is not unique or when the discount factor approaches unity we develop an equivalent model that can be used to solve the vintage problem numerically from any initial state numerical examples suggest that the optimal solution converges to the stationary cycle from any initial vintage structure

an equilibrium analysis of defensive response to entry using a coupled response function model we determine the optimal response to competitive entry in a market characterized by a market share attraction model the response of an incumbent is limited to changes in prices advertising and distribution expenditures brand positions are assumed to be fixed we also assume that the entrant s position is chosen exogenously and that the sales potential of the market is constant after proving the existence of a unique nash equilibrium we show that the optimal response depends on the relative market share of the incumbents the response by nondominant brands with market shares less than 50 mirrors the prediction by decoupled response function models reduce price advertising and distribution spending for the dominant brand having a market share of 50 the response is to reduce price and increase marketing spending this finding explains previous empirical results that could not be addressed by the decoupled models

divisionalization with spatial differentiation abstract this paper assumes that firms can create independent divisions which compete in a market where the product is spatially differentiated our first result is that if the number of firms is exogenous and higher than some critical level then the symmetric subgame perfect equilibrium converges to perfect competition when the cost of divisionalization converges to zero comparisons between the equilibrium level of divisionalization and the socially efficient are also obtained in this context on the other hand if we assume free entry and a fixed cost per firm then the subgame perfect equilibrium implies in some cases a natural oligopoly or monopoly

on the limits and possibilities of the principle of minimum differentiation abstract introducing a finite reservation price in hotelling s spatial duopoly with linear transportation costs shows that i there does not exist a pure strategy symmetric location equilibrium if the reservation price is high ii there is a continuum of monopolistic equilibria if the reservation price is low and iii there exists a unique pure strategy symmetric location equilibrium in which the two firms compete with each other and cover the entire market if the reservation price is intermediate the equilibrium distance between the two firms in the latter case is at least a quarter and at most half the length of the market

product differentiation and location decisions under demand uncertainty we investigate hotelling s duopoly game of location then price choices with quadratic transportation costs and uniformly distributed consumers under the assumption that firms are uncertain about the exact location of demand we characterize the unique equilibrium and the socially optimal locations contrary to the individual level random utility models location uncertainty is a differentiation force in equilibrium increases in the variance of the uncertainty lead to greater differentiation higher expected equilibrium prices and profits and a greater welfare loss

product and price competition in a two dimensional vertical differentiation model in this paper the one dimensional vertical differentiation model shaked and sutton shaked a j sutton 1982 relaxing price competition through product differentiation rev econom stud 49 3 13 moorthy moorthy k s 1988 product and price competition in a duopoly marketing sci 7spring 141 168 is extended to two dimensions and an analysis of product and price competition is presented a two stage game theoretic analysis in which two firms compete first on product positions and then on price is conducted closed form equilibrium solutions are obtained for each stage in which competitors are unrestricted in their choices of price or product positions a significant finding of this research is that unlike the one dimensional vertical differentiation model firms do not tend towards maximum differentiation although this solution is possible under certain conditions when the range of positioning options on each of the dimensions is equal maxmin product differentiation occurs that is in equilibrium the two firms tend to choose positions which will represent maximum differentiation on one dimension and minimum differentiation on the other dimension

a theory of quality related differences in retail margins why there is a premium on premium gasoline this paper develops a theory of vertical and horizontal product differentiation to explain observed price cost margin differentials for goods that differ in quality the difference in price cost margins between the high and low quality goods is shown to depend positively on consumers average valuation for incremental increases in quality and positively on the distance to each competitor s closest rival these predictions are largely supported using an extensive station level data set of premium and regular unleaded gasoline prices from the los angeles basin area from 1992 1995

successive oligopolies with differentiated firms and endogeneous entry we develop a model of successive oligopolies with endogenous entry allowing for varying degrees of product differentiation and entry costs in both markets we show that downstream conditions dominate the overall profitability of the two tier structure while upstream conditions mainly affect the distribution of profits we analyze how two part tariffs and resale price maintenance shape the endogenous market structure and study their welfare effects in contrast to previous literature we find that welfare under linear prices can be larger than under twopart tariffs although the latter avoids double marginalization this is because linear prices induce more downstream market entry

is having more channels really better a model of competition among commercial television broadcasters competitive behavior in commercial television broadcasting is modeled to examine program choice and the effects of more channels being available on firm strategy specifically broadcasters compete by selecting both the type and quality level of a program to offer but do not compete on price we obtain five major results first a comparison of monopoly and duopoly markets indicates that broadcasters in an industry with a larger number of competitors may provide programs of lower quality compared to broadcasters in an industry with a smaller number second in terms of viewer welfare having more channels available is not necessarily better third broadcasters tend to choose an intermediate level of differentiation in terms of the types of programs they provide resulting in a counterprogramming strategy in other words avoidance of price competition is not required for competitors to differentiate themselves from each other fourth if one broadcaster starts the evening with a higher quality higher rated program than its competitor its second program should also be of higher quality finally a broadcaster s first program should be of equal or higher quality than its second program put another way it always behooves a broadcaster to lead with its best

response to competitive entry a rationale for delayed defensive reaction empirical studies examining responses to new product entries come to the puzzling conclusion that in general an incumbent reacts to a new entrant after a significant delay even easy to implement price cuts are observed after significant lag following entry these findings seem to contradict the existing literature that either implicitly assumes or strongly advocates immediate defensive responses to limit competitive encroachment when a competing firm enters the market consumers may be uncertain about the entering firm s product quality the incumbent firm through rigorous tests may fully know the entrant s quality suppose the incumbent aggressively lowers price this may cause the consumers to wonder if indeed the entrant s quality is high in other words an incumbent s reaction may cause the consumers to make inferences about the entrant s quality such strategic implications of the incumbent s reactions have to be carefully analyzed before determining the optimal response by the incumbent in this paper we propose a conceptual framework for understanding differences in the magnitude and timing of incumbents responses to competitive entries we consider a model in which a monopolist incumbent firm faces competitive entry the incumbent firm knows the true quality of the entrant with certainty although consumers are aware of the incumbent s product quality through their prior experience they are initially uncertain of the entrant s product quality in such a situation a high quality entrant has the incentive to signal her true quality through her strategic price choice however the uncertainty about the entrant s quality is favorable to the incumbent in the sense that consumers believe with a high probability that the entrant s quality is low as a result the strategic incentives facing the incumbent and the entrant oppose each other while the entrant wants to signal her high quality the incumbent wants to prevent her from doing so we demonstrate that one way the incumbent can prevent the quality signaling is to select a higher than his optimal competitive duopoly price in other words the incumbent can prevent or jam the entrant s quality signaling by choosing a price higher than his optimal competitive price when consumers are fully informed about the entrant s true quality though the signal jamming price is lower than the monopoly price the price is substantially higher than the competitive price this marginal reduction in the incumbent s price from the pre entry monopolistic price represents a muted or lack of response by the incumbent to the competitive entry however once the entrant s quality gets revealed in subsequent periods through consumer usage and word of mouth the entrant has no incentive to engage in quality signaling and the incumbent has no incentive to jam it therefore the market reverts to the complete information competitive prices and the incumbent lowers his price considerably this temporal pattern of muted price reduction in the first period followed by a sharp price reduction in the second period corresponds to a delayed defensive reaction in our model although the empirical studies suggest that the delayed reaction may arise due to factors such as managerial inertia or indecision we demonstrate that such a behavior is indeed an optimal strategy for a profit maximizing firm thus our model reconciles empirical results with the equilibrium outcome of a strategic analytical framework furthermore in an experimental setting we test the predictive power of our framework and establish that consumers indeed form conjectures about the entrant s quality based on the incumbent s reactions in the first experimental study we find strong support for the notion that the incumbent s price reaction may indicate entrant s quality in a follow up study we observe that whenever the incumbent lowers prices respondents judge the quality of the entrant to be higher as compared to the case when prices are the same or increased the managerial implication of this paper is that well established incumbent firms should be cautious in the implementation of their defensive responses to product introductions of uncertain quality by competitors of particular concern are situations where the reactions are easily observable by consumers a strong reaction may suggest that the incumbent takes the competitive threat seriously leading consumers to believe in the quality of the competitor s product

optimal bundling under imperfect competition abstract this paper examines the profitability of bundling for a two product seller of differentiated products facing competition from a one product rival in the presence of imperfect competition pure bundling emerges as the optimal pricing strategy other than ensuring the monopoly product can only be purchased in a bundle pure bundling s additional advantages stand in its ability to i prevent consumers from forming their own bundle using the single product seller s product ii reduce aggressiveness in pricing and iii smooth over the variation in valuations consumers have for the two types of products however the profit maximizing strategy is not welfare maximizing consumers are best off when all products are available a la carte only the competitor maximizes profits under mixed bundling and total welfare would be highest if the two product supplier were to offer only the monopoly product a la carte

minimal and maximal product differentiation in hotelling s duopoly abstract hotelling s 1929 model of duopolistic competition is re examined a family of utility functions is used which has as a special case hotelling s original utility function in a two stage location price game it is shown that an equilibrium exists when the curvature of the utility functions in the space of characteristics is sufficiently high the subgame perfect equilibrium never exhibits minimum product differentiation on the other hand not all equilibria are at maximal product differentiation

optimal control of generic fluid milk advertising expenditures optimal expenditures of the new york state milk promotion program are determined for three markets spending level in new york city and albany should be reduced by about 10 while that for syracuse should be increased three times further there exists an optimal seasonal advertising pattern which reflects the seasonal pattern of the class 1 differential in addition the optimal spending level and seasonal pattern of the state promotion program depends on those of the national program thus coordination between the two promotional units is essential to achieve optimality generic dairy promotion is big business dairy farmers now invest over 200 million annually in promoting the consumption of milk and dairy products nonoptimum allocations of funds miss opportunity to achieve high returns the possibility of potential losses emphasizes the importance of understanding the economics of dairy promotion the continuing effect of advertising on sales after the original period of expenditure is aptly summarized by waugh s statement that old advertisements never die they just fade away the lingering impact of advertising suggests the use of a dynamnic setting in which to explore promotion issues thus far most of the atten

competing for low end markets recent business research points to the fortune awaiting to be tapped in low end markets in this paper we investigate how the size of the low end market influences a firm s profits and the pioneering firm s quality choice as low valuation consumers increase in a market on average consumers willingness to pay decreases this may lead us to expect firms profits to decrease as the size of the low end market increases our analysis shows that if the size of the low end market is below a threshold an increase in the size of the low end market may actually dampen price competition and improve profits as firms can then strategically choose their quality levels such that their products are more differentiated conventional wisdom also suggests that the pioneering firm will offer a higher quality product and earn more profits compared with the later entrant in contrast to this notion of quality advantage our analysis identifies circumstances in which a pioneer can offer a lower quality product and yet earn more profits an experimental test lends support for some of our model s predictions we further extend the model to consider markets with multiple firms firms with multiple products and consumers with limited purchasing power

defensive marketing strategies an equilibrium analysis based on decoupled response function models the entry of a new product attacker into a competitive market is likely to provoke responses from some or all of the existing products defenders this paper investigates the development of optimal defensive strategies based on an understanding of the possible reactions of all the defenders to an optimal attack following lane lane w j 1980 product differentiation in a market with endogenous sequential entry bell j econom 11 1 spring 237 260 we assume that n products each enter sequentially with perfect foresight on subsequent entry then based on new technology an unanticipated attacker enters the n defenders respond in price but not position according to lane s model once this equilibrium is obtained advertising and distribution response functions scale sales we show that under these decoupled response function models of advertising and distribution uniformly distributed tastes and nonincreasing market size the optimal defense for all existing brands is to decrease their respecti

effectiveness of fluid milk advertising since the dairy and tobacco adjustment act of 1983 an econometric model pooling monthly cross sectional and time series data is estimated to measure the impact of national and regional generic fluid milk advertising the estimated model shows that the effectiveness of advertising has increased since the implementation of the dairy adjustment act gains in fluid milk sales attributed to milk advertising are estimated sales gains for both the pre and post act periods are shown along with the gains associated with parameter changes in the post act periods marginal advertising responses are derived

from local to global competition abstract we introduce a framework that has known models of oligopolistic competition with differentiated products the circle the logit and the ces as limit cases this integrative approach incorporates both localized and global competition as well as price sensitive individual demands it is used to explain the impact of major changes over the last two centuries reductions in transport costs increased taste for variety population growth and use of technologies with greater returns to scale we work out the properties of an extended chamberlinian model with applications both in industrial organization and economic geography

competing across technology differentiated channels the impact of network externalities and switching costs technology driven commerce channels such as the web possess several unique features that differentiate them from traditional channels the interaction between firms operating across these differentiated channels involves interesting competitive dynamics that cannot be captured by isolated models of electronic markets this paper develops a stylized spatial differentiation model to examine the impact of differences in channel flexibility network externalities and switching costs on competition between online traditional and hybrid firms a basic model highlighting the moderating influence of the hybrid firm on both channels is extended to account for differential network externalities and switching costs across the two channels our analysis indicates that while network effects as well as switching costs lead to the tipping of markets such tipping occurs primarily due to the moderating effects of the competing channel more importantly with network effects an increased market share does not translate into higher profits contradictory to conventional wisdom our results indicate that in a static market consumers rather than firms benefit from increasing network externalities with competitive effects outweighing the surplus extraction abilities of firms our results also highlight the importance of alternative revenue streams and provide insights for firms grappling with issues of channel choice as well as integration and divestiture