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Product design rivalry: multiple-attributes approach to differentiation

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  • Nobuo Matsubayashi

    (Department of Administration Engineering, Faculty of Science and Technology, Keio University, Yokohama, Japan)

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    Abstract

    This paper studies product design competition between potentially symmetric firms. We specifically employ the multiple-attributes approach as the method of product design. While various product-specific attributes contribute to firms' differentiation, they may cause confusion resulting in consumer dissatisfaction. We show that in the presence of these opposite effects and any setup costs for attributes, the differentiation by multiple attributes is beneficial for firms if, and only if they are moderately competitive. We furthermore show that the socially efficient number of attributes can only be sustained when there are not very many firms and the setup cost is low. Copyright © 2008 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/mde.1418
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 29 (2008)
    Issue (Month): 7 ()
    Pages: 555-563

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    Handle: RePEc:wly:mgtdec:v:29:y:2008:i:7:p:555-563

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    Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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    1. Wernerfelt, Birger, 1986. "Product Line Rivalry: Note," American Economic Review, American Economic Association, vol. 76(4), pages 842-44, September.
    2. Chou, Chien-fu & Shy, Oz, 1990. "Network effects without network externalities," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 259-270, June.
    3. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
    4. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-79, September.
    5. James Brander & Jonathan Eaton, 1982. "Product Line Rivalry," Working Papers 519, Queen's University, Department of Economics.
    6. J. Miguel Villas-Boas, 2004. "Communication Strategies and Product Line Design," Marketing Science, INFORMS, vol. 23(3), pages 304-316, January.
    7. Chou, Chien-fu & Shy, Oz, 1993. "Partial compatibility and supporting services," Economics Letters, Elsevier, vol. 41(2), pages 193-197.
    8. Kilsun Kim & Dilip Chhajed, 2002. "Product Design with Multiple Quality-Type Attributes," Management Science, INFORMS, vol. 48(11), pages 1502-1511, November.
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