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Product Design Competition Under Different Degrees of Demand Ambiguity

Author

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  • T. Florian Kauffeldt

    (University of Heidelberg)

  • Boris R. Wiesenfarth

    (University of Heidelberg)

Abstract

Product differentiation decisions are frequently made under imperfect probabilistic information about consumer tastes (demand ambiguity). We investigate a Hotelling duopoly game of product-design-then-price choices that incorporates demand ambiguity. Our model allows for different levels of demand ambiguity. We find that the impact of ambiguity on product differentiation depends on firms’ ambiguity attitudes. Furthermore, our model generalizes the probabilistic model of Meagher and Zauner (J Econ Theory 117:201–216, 2004) and the non-probabilistic model of Krol (Int J Ind Org 30:593–604, 2012).

Suggested Citation

  • T. Florian Kauffeldt & Boris R. Wiesenfarth, 2018. "Product Design Competition Under Different Degrees of Demand Ambiguity," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 53(2), pages 397-420, September.
    • Handle: RePEc:kap:revind:v:53:y:2018:i:2:d:10.1007_s11151-018-9620-5
    DOI: 10.1007/s11151-018-9620-5
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    References listed on IDEAS

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    Cited by:

    1. Olivier Kayser, 2023. "Ambiguous consumer tastes and product differentiation," EconomiX Working Papers 2023-20, University of Paris Nanterre, EconomiX.

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    More about this item

    Keywords

    Ambiguity; Choquet-expected utility; Hotelling; Product differentiation;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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