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

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Author Info
Verboven, Frank

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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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Publisher Info
Article provided by Blackwell Publishing 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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  1. 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. [Downloadable!] (restricted)
    Other versions:
  2. E. Zacharias & T. Stengos, 2006. "Intertemporal pricing and price discrimination: a semiparametric hedonic analysis of the personal computer market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(3), pages 371-386. [Downloadable!]
    Other versions:
  3. Glenn Ellison, 2004. "A Model of Add-on Pricing," Economics Working Papers 0049, Institute for Advanced Study, School of Social Science. [Downloadable!]
    Other versions:
  4. Silvia Sonderegger, 2004. "Nonlinear Pricing and Multimarket Duopolists," The Centre for Market and Public Organisation 04/110, Department of Economics, University of Bristol, UK. [Downloadable!]
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