Optimal Product Line Design When Consumers Exhibit Choice Set-Dependent Preferences
AbstractIn a market of consumers with varying willingness to pay, using product line as a discrimination tool may extract higher profits than serving all consumers with a single product. Local context effects, however, point to yet another consideration in designing product lines: how the appeal of a product changes with the context provided by other products in the choice set. I present a model of product line design that incorporates both discrimination and context management goals and offers recommendations for the variety and positioning of products. To this end, the model makes use of a framework that allows preferences to be choice set dependent. Given this framework, I study how the firm manages externalities between products created by such dependencies. The firm creates distortions above and beyond those resulting from discrimination motives alone. For example, in a vertically differentiated market for quality, quality distortions exist even for the consumers with the highest valuations. The range of quality provisions, given the number of products, is compressed as the relative importance of unfavorable comparisons among products increases. Surprisingly, this compression may even lead the firm to forego discrimination among consumers regardless of the cost of offering distinct products.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by INFORMS in its journal Marketing Science.
Volume (Year): 28 (2009)
Issue (Month): 5 (09-10)
price discrimination; product positioning; context effects; choice set-dependent preferences; context management; behavioral economics;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Avi Goldfarb & Teck-Hua Ho & Wilfred Amaldoss & Alexander Brown & Yan Chen & Tony Cui & Alberto Galasso & Tanjim Hossain & Ming Hsu & Noah Lim & Mo Xiao & Botao Yang, 2012. "Behavioral models of managerial decision-making," Marketing Letters, Springer, vol. 23(2), pages 405-421, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.