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Product Line Rivalry and Market Segmentation--With an Application to Automobile Optional Engine Pricing

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  • Verboven, Frank

Abstract

This paper addresses the questions whether and when the pricing practices on base products may differ from those of premium products, sold with options or add-ons. Various alternative models are considered: a monopoly model, a model of brand rivalry with full consumer information and a model of rivalry in which consumers are only well informed about base product prices. Only the brand rivalry model with limited consumer information predicts that premium products have larger percentage markups than base products, provided that brand rivalry is sufficiently intense. Empirical evidence on base and premium product pricing in the automobile market is consistent with the limited information model and inconsistent with the other two models. Copyright 1999 by Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

Volume (Year): 47 (1999)
Issue (Month): 4 (December)
Pages: 399-425

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Handle: RePEc:bla:jindec:v:47:y:1999:i:4:p:399-425

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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Cited by:
  1. Haizhen Lin & Yijia Wang, 2012. "Competition and Price Discrimination in the Parking Garage Industry," Working Papers 2012-07, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  2. Courty, Pascal & Pagliero, Mario, 2009. "The Impact of Price Discrimination on Revenue: Evidence from the Concert Industry," CEPR Discussion Papers 7120, C.E.P.R. Discussion Papers.
  3. Glenn Ellison, 2005. "A Model of Add-on Pricing," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 585-637, May.
  4. repec:aeg:report:2014-4 is not listed on IDEAS
  5. Silvio Sticher, 2013. "Competitive Market Segmentation," Diskussionsschriften dp1313, Universitaet Bern, Departement Volkswirtschaft.
  6. Kokovin, Sergey & Nahata, Babu & Zhelobodko, Evgeny, 2008. "Why quantity premia are rare?," Economics Letters, Elsevier, vol. 100(1), pages 153-156, July.
  7. Thanasis Stengos & Eleftherios Zaharias, 2002. "Intertemporal Pricing and Price Discrimination: A Semiparametric Hedonic Analysis of the Personal Computer Market," University of Cyprus Working Papers in Economics 0211, University of Cyprus Department of Economics.
  8. Silvia Sonderegger, 2004. "Nonlinear Pricing and Multimarket Duopolists," The Centre for Market and Public Organisation 04/110, Department of Economics, University of Bristol, UK.
  9. Tommaso Ciarli & Andre' Lorentz & Maria Savona & Marco Valente, 2012. "The role of technology, organisation, and demand in growth and income distribution," LEM Papers Series 2012/06, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  10. Homsombat, Winai & Lei, Zheng & Fu, Xiaowen, 2014. "Competitive effects of the airlines-within-airlines strategy – Pricing and route entry patterns," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 63(C), pages 1-16.

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