Product variety and demand uncertainty
By: Dennis W. Carlton, James D. Dana.
Contributors: Dana, James D.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10594; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10594.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Product differentiation.; Demand (Economic theory); Uncertainty.
Description: "We show that demand uncertainty leads to vertical product differentiation even when consumers are homogeneous.  When a firm anticipates that its inventory or capacity may not be fully utilized, product variety can reduce its expected costs of excess capacity.  When the firm offers a continuum of product varieties, the highest quality product has the highest profit margins but the lowest percentage margin, while the lowest quality product has the highest percentage margin but the lowest absolute margin.  We derive these results in both a monopoly model and a variety of different competitive models.  We conclude with a discussion of empirical predictions together with a brief discussion of supporting evidence available from marketing studies"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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