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Restoring the Principle of Minimum Differentiation in Product Positioning

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  • Rhee, Byong-Duk, et al
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    Abstract

    Most research on product positioning supports the idea of differentiation. Product standardization (i.e., minimum differentiation) occurs only under very limiting assumptions. Yet, similar products are often observed in the marketplace. We attempt to restore the case for standardization by using more realistic assumptions than in previous work. We assume that consumers consider not only observable attributes in brand choice, but also attributes that are unobservable by the firms. We find that standardization is an equilibrium when consumers exhibit sufficient heterogeneity along the unobservable attributes under both positioning with exogenously given prices and price competition. We also show that, under insufficient heterogeneity along the unobservable attribute, our results coincide with past research that argues in favor of differentiation. Coauthors are Andre de Palma, Claes Fornell, and Jacques-Francois Thisse. Copyright 1992 by MIT Press.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

    Volume (Year): 1 (1992)
    Issue (Month): 3 (Fall)
    Pages: 475-505

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    Handle: RePEc:bla:jemstr:v:1:y:1992:i:3:p:475-505

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    Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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    Web: http://www.blackwellpublishing.com/journal.asp?ref=1058-6407&site=1

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    Cited by:
    1. Christou, Charalambos & Vettas, Nikolaos, 2005. "Location choices under quality uncertainty," Mathematical Social Sciences, Elsevier, vol. 50(3), pages 268-278, November.
    2. Stefano Colombo, 2013. "Differentiated Bertrand markets: restoring the minimum differentiation principle," Letters in Spatial and Resource Sciences, Springer, vol. 6(2), pages 103-108, July.
    3. Matsumura, Toshihiro & Shimizu, Daisuke, 2005. "Spatial Cournot competition and economic welfare: a note," Regional Science and Urban Economics, Elsevier, vol. 35(6), pages 658-670, November.
    4. Erkal, Nisvan, 2007. "Buyer-supplier interaction, asset specificity, and product choice," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 988-1010, October.
    5. Timothy Sorenson, 1999. "Product Location with Foresight," Review of Industrial Organization, Springer, vol. 14(3), pages 281-292, May.
    6. Espinosa Alejos, María Paz & Aguirre Pérez, Iñaki, 2003. "Product Differentiation with Consumer Arbitrage," DFAEII Working Papers 2003-04, University of the Basque Country - Department of Foundations of Economic Analysis II.
    7. Rhee, Byong-Duk, 2006. "First-mover disadvantages with idiosyncratic consumer tastes along unobservable characteristics," Regional Science and Urban Economics, Elsevier, vol. 36(1), pages 99-117, January.
    8. Mai, Chao-cheng & Peng, Shin-kun, 1999. "Cooperation vs. competition in a spatial model," Regional Science and Urban Economics, Elsevier, vol. 29(4), pages 463-472, July.
    9. Liang, Wen-Jung & Mai, Chao-Cheng, 2006. "Validity of the principle of minimum differentiation under vertical subcontracting," Regional Science and Urban Economics, Elsevier, vol. 36(3), pages 373-384, May.
    10. Wen-Jung Liang & Yen-Ju Lin & Hong Hwang, 2012. "Heterogeneous duopoly, spatially discriminatory pricing, and optimal location," The Annals of Regional Science, Springer, vol. 49(3), pages 845-860, December.

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