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Salience and horizontal differentiation

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  • R. Emre Aytimur

Abstract

I study a horizontal differentiation model in which one of two attributes of a product, product fit and price, is more salient for a consumer than the other and different consumers can find a different attribute salient. The attribute that is more salient is determined by relative differences between the two products and is determined endogenously as a result of firms' pricing strategies. High (low) marginal costs soften (toughen) price competition between firms. Pass‐through rates are greater than 1 for some parameter values. Both industry‐ and firm‐level cost increases may be beneficial for firms. Pertinence et différenciation horizontale. J'étudie un modèle de différenciation horizontale dans lequel un des deux attributs d'un produit (sa convenance et son prix) est plus pertinent que l'autre pour un consommateur, divers consommateurs pouvant trouver un attribut pertinent différent. L'attribut qui est plus pertinent est déterminé par les différences relatives entre les deux produits ainsi que de façon endogène en fonction des stratégies de prix des entreprises. Des coûts marginaux élevés (faibles) atténuent (renforcent) la concurrence par les prix entre les entreprises. Les taux de transfert sont supérieurs pour certaines valeurs de paramètre. Les augmentations de coût tant à l'échelon de l'industrie que de l'entreprise peuvent être bénéfiques pour les entreprises.

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  • R. Emre Aytimur, 2023. "Salience and horizontal differentiation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(1), pages 60-86, February.
    • Handle: RePEc:wly:canjec:v:56:y:2023:i:1:p:60-86
    DOI: 10.1111/caje.12632
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