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Dynamic Product Diversity

Author

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  • Ramon Caminal

Abstract

This paper examines the frequency of new product introductions in monopoly markets where demand is subject to temporary satiation. Consumers' taste for diversity is satisfied over time as new varieties are introduced to the market. If two varieties are introduced in consecutive periods then they become imperfect substitutes and the firm has an incentive to raise prices and sell each one to consumers with higher average valuations (better preference matching). Higher frequency can also generate market expansion. However, under strong temporary satiation, better preference matching may dominate and the frequency of new product introductions may become socially excessive.

Suggested Citation

  • Ramon Caminal, 2014. "Dynamic Product Diversity," Working Papers 594, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:594
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    File URL: https://www.barcelonagse.eu/sites/default/files/working_paper_pdfs/594.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    temporary satiation; product diversity; repeat purchases; demand cycles;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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