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

revenue management with strategic customers last minute selling and opaque selling companies in a variety of industries e g airlines hotels theaters often use last minute sales to dispose of unsold capacity although this may generate incremental revenues in the short term

credible spatial preemption it is often argued that incumbent firms may deter entry by preemptive investment in new goods we show that these conclusions are reversed when multiproduct incumbentfirms may exit in response to entry once entrants are in an industry an incumbent will often want to withdraw some goods to prevent competition with the entrant from reducing profits on other goods such a reaction makes entry more attractive to a potential entrant the equilibrium industry structure is less likely to be monopolistic as the goods are better substitutes as exit costs are low and as the competition between producers of the same good is more intense

market segmentation strategies of multiproduct firms we analyze a multiproduct duopoly and ask whether firms should offer general purpose products or tailor their offerings to fit specific consumer needs offering a targeted product has two effects utility increases for some consumers due to increased fit whereas utility decreases for others due to increased misfit previous work has not considered these two effects jointly and has therefore not been able to capture the tradeoff inherent in market segmentation we show that in addition to the degree of fit and misfit the intensity of competition and the fixed cost of offering an additional product determine firms market segmentation strategies extending product lines to target more narrowly defined consumer segments has been a favorite strategy of brand managers for years popular buzzwords like one on one marketing and niche marketing underline its importance in practice in this context we ask to what extent market segmentation is justified from a profitability point of view consider a competitive environment in which each firm can either offer a general purpose product or segment the market by offering products that are tailored to consumers needs while a consumer ceteris paribus prefers a product that is targeted at her own segment she would rather buy a general purpose product than a product that is targeted at another segment segmenting the market therefore has two effects first if a consumer s preferred product is offered she is better off because she is able to buy a product that exactly fits her needs we call this positive aspect of market segmentation fit second if the consumer s preferred product is not offered she is worse off because she ends up with a product that does not satisfy her needs at all this negative aspect of market segmentation is denoted as misfit

location choice product proliferation and entry deterrence within a slightly modified version of hotelling s model we reconsider the claim that the threat of entry induces existing firms to produce a larger number of products than they would otherwise we show that entry deterrence although optimal need not be achieved through product proliferation in some cases the incumbent monopolist resorts to an entry deterring strategy based on location choice rather than product proliferation we also show that in some cases the number of products chosen by the incumbent facing the threat of entry is strictly greater than the minimum number required to deter entry

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

intraconnectivity and interconnectivity when value creation may reduce profits this paper analyses firms decisions to provide connectivity to their customers we distinguish between intraconnectivity the ability of one firm s customers to connect to each other and interconnectivity the ability of one firm s customers to connect with another firm s customers the profitability implications of allowing connectivity are not a straightforward consequence of the consumer value of connectivity because connectivity affects not only the customer value but also the intensity of competition by creating or changing network externality we find that if sales are driven by brand switching rather than by category expansion a firm may find it optimal not to provide intraconnectivity even if providing it is not costly and may find it optimal to provide interconnectivity even at a cost exceeding the consumer value of connectivity on the other hand if category expansion is possible providing intraconnectivity may be profitable in this case either the equilibrium intraconnectivity provision may be asymmetric or both firms may find it individually optimal to provide intraconnectivity under certain conditions in the latter case the firms choice of intraconnectivity is a prisoner s dilemma game

the effect of ownership structure on prices in geographically differentiated industries i analyze how ownership structure and market geography jointly influence fast food prices i estimate a model of demand and supply that accounts for the market geography and run counterfactual experiments that demonstrate how mergers affect prices i find that the impact of mergers can be large that this impact decreases as the merging outlets are farther apart that mergers among market leaders generally increase prices more than mergers among weaker firms and that mergers can increase prices even if the outlets are so far apart that neither outleti s presence affects prices at the other before the merger

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

price discrimination and social welfare studies the effect of price discrimination on social welfare using methods from duality theory features of the reservation model presented quasi linear utility and consumers surplus upper and lower bounds on welfare change bounds on welfare change with optimal price discrimination from ebsco

turf wars product line strategies in competitive markets in this paper we study product line scope and pricing decisions in a horizontally differentiated duopoly past research has shown that a firm may offer a broader product line to attract higher demand or charge a higher price or both and benefit at the expense of its competitor we show that such outcomes may be reversed especially when consumers have relatively high valuation and low heterogeneity in their preferences for the line extension we find that an equilibrium exists such that only one firm prefers to expand scope but profits may be higher for both firms even in the absence of market size expansion this is because a broader scope permits that firm to effectively price discriminate by raising prices for its core customers the competitor optimally responds by lowering prices to gain share and earn a higher profit thus higher prices for the firm expanding its product line translate into higher demand for the competing firm thus increasing profit for both we show that our results hold when firms deploy generic offensive or defensive strategies during product line expansion

market segmentation self selection and product line design the purpose of this paper is to develop a theory of market segmentation based on consumer self selection the extant theory is based on the third degree price discrimination model of pigou central assumptions of which are that the firm can directly address individual segments and isolate them by using consumer self selection i am relaxing these assumptions in the context of a monopolist designing a product line i show that this relaxation has significant implications for how the products and prices are chosen and what they look like in particular segments may be aggregated even though there are no economies of scale furthermore consumer self selection enables us to model cannibalization and competition among firms

standard vs custom products variety lead time and price competition in this paper we study the standardization and customization decisions of two firms in a competitive setting along with variety lead time and price decisions we incorporate consumer heterogeneity both in firm preference or store convenience and in product attribute preferences we find that the equilibrium outcome depends on the cost efficiencies of the production technologies as well as the consumer sensitivity to product fit and lead time we develop an index that signifies the relative attractiveness of the standardization and customization strategies and the potential outcomes we identify the strategic roles of product variety and lead time in the competition in contrast to the previous literature we find that increasing the variety will not intensify the price competition if there is sufficient firm differentiation rather it relieves the price pressure for the firm as it satisfies consumer needs better and enables higher price premiums we also analyze the impact of asymmetric variable costs fixed costs and brand reputation on the equilibrium decisions

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

product positioning and competition the role of location in the fast food industry this paper examines optimal product positioning strategies of asymmetric firms in the context of retail outlet locations in the fast food industry the relationships between profits and product differentiation reveal that both mcdonald s and burger king are better off avoiding close competition if the market area is large enough however in small market areas mcdonald s would prefer to be located together with burger king rather than have the two outlets be only a slight distance apart in contrast burger king s profits always increase with greater differentiation offsetting these incentives is the desirability of locating centrally to appeal to the most customers the equilibrium depends on the market s size in small markets mcdonald s locates near the center of the market and burger king locates to the side of the market in larger markets mcdonald s and burger king choose locations on opposite sides of the market although mcdonald s locates closer to the optimal central location than burger king i also show that the role of price competition on product positioning is fundamentally different under asymmetric competition than under symmetric competition price competition unambiguously induces symmetric firms toward differentiation in contrast with asymmetric firms price competition shifts burger king s incentives toward locating closer to mcdonald s even while price competition increases mcdonald s desire for differentiation as a result equilibrium locations with asymmetric firms are approximately the same regardless of whether prices adjust with location

a dynamic model of competitive entry response i develop a dynamic investment game with a memoryless research and development process in which an incumbent and an entrant can invest in a new technology and the entrant can also invest in the old technology i show that an increase in the probability of successfully implementing a technology can cause the incumbent to reduce its investment under certain conditions if the success probability is high the incumbent allows the entrant to win the new technology so that firms reach an equilibrium in which they use different technologies and threats of retaliation prevent attacks but if the success probability is low such an equilibrium cannot be sustained and both firms eventually implement both technologies

welfare and non linear pricing in a cournot oligopoly a simple second degree price discrimination model involving nonlinear pricing of packets of a homogeneous product is shown to exhibit a welfare loss compared to the situation when nonlinear pricing is prohibited the result holds for a cournot oligopoly as well as monopoly further analysis considers the welfare loss from the market supplying too large a packet copyright 1991 by royal economic society

designing a family of development intensive products faced with fragmented markets saturated and demanding customers and global competition firms increasingly must design and offer a line of innovative quality differentiated products to target customers with differing willingness to pay wtp in this context designing a special class of products that we term development intensive products dips for which the fixed costs of development far outweigh the unit variable costspresents some unique managerial challenges examples of such development intensive offerings abound in a number of industries including the pharmaceutical information and entertainment sectors of the economy our contributions in this paper are threefold a to show that managerial insights from the traditional approach to product line design developed for unit variable cost intensive products do not carry over to dips b to present new mechanisms and managerial guidelines for designing a family of products for which development costs cannot be ignored and c to illustrate the insights with an extended industry example we find that the design approach based on degrading or subtracting value from a high end product to obtain a subsumed low end edition shown in the literature to be an effective approach for designing unit cost intensive products can be inappropriate for dips this limitation of value subtraction has implications for the number of variants and the sequence in which they are developed as an alternative to a subsumed product design strategy we propose and examine the overlapped product design approach in which a low end product is not completely subsumed within its high end counterpart but differentiated on additional vertical quality dimensions our results both explain the recent challenges of firms with subsumed low end products and guide them in designing a product line to successfully address emerging low end market segments

when more alternatives lead to less choice this paper shows that when the alternatives offered to consumers span the preference space as it would be chosen by a firm search or evaluation costs may lead consumers not to search and not to choose if too many or too few alternatives are offered if too many alternatives are offered then the consumer may have to engage in many searches or evaluations to find a satisfactory fit this may be too costly and result in the consumer avoiding making a choice altogether if too few alternatives are offered then the consumer may not search or choose fearing that an acceptable choice is unlikely these two forces result in the existence of a finite optimal number of alternatives that maximizes the probability of choice

income and employment disparities across european regions the role of national and spatial factors meliciani v 2006 income and employment disparities across european regions the role of national and spatial factors regional studies 40 75 91 the paper analyses the impact of trends in employment rates on income convergence across european regions looking at the evolution of entire distributions between 1988 and 1996 european regions have been characterized by a very slow process of income convergence across countries and by a lack of income convergence within countries while trends in labour productivity have contributed to income convergence trends in employment rates have had a diverging impact polarization in employment rates also appears to be the result of national factors and of the negative performance of objective 1 regions more than the consequence of the emergence of geographical clusters that go beyond national borders regional convergence unemployment spatial correlation non parametric estimation meliciani v 2006 les ecarts de revenu et d emploi a travers les regions d euro

multiple product firms a nested logit approach this paper proves the existence of a symmetric equilibrium with multiproduct firms using a nested logit model of demand the demand model is parameterized by two variables that characterize different dimensions of preference for variety these reflect intragroup heterogeneity and intergroup heterogeneity a group or nest being the set of products produced by a firm there are then two dimensions to market performance the total number of firms and the range of products produced per firm it is shown that the market equilibrium involves an excessive number of firms but each firm provides too few products copyright 1992 by blackwell publishing ltd

can price competition dominate market segmentation this note analyses duopoly competition in a two stage location price game while allowing each firm to establish a couple of outlets both the circle and the line model of spatial competition are considered our main result is clear cut in equilibrium neither firm will take up the opportunity of opening two stores this is a warning that market segmentation i e competition from multiple outlets might not be attractive at all because it entails more intense price competition