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Dynamic Product Diversity

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  • Ramon Caminal
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    Abstract

    The goal of this paper is to study the frequency of new product introductions in monopoly markets where demand is subject to transitory saturation. We focus on those types of goods for which consumers purchase at most one unit of each variety, but repeat purchases in the same product category. The model considers in…finitely-lived, forward-looking consumers and …firms. We show that the share of potential surplus that a monopolist is able to appropriate increases with the frequency of introduction of new products and the intensity of transitory saturation. If the latter is sufficiently strong then the rate of introduction of new products is higher than socially desirable (excessive dynamic product diversity.)

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    File URL: http://research.barcelonagse.eu/tmp/working_papers/594.pdf
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    Bibliographic Info

    Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 594.

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    Date of creation: Dec 2011
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    Handle: RePEc:bge:wpaper:594

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    Related research

    Keywords: transitory saturation; product diversity; repeat purchases; demand cycles;

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    1. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    2. Waldman, Michael, 1993. "A New Perspective on Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 273-83, February.
    3. Kenneth S. Corts, 2001. "The Strategic Effects of Vertical Market Structure: Common Agency and Divisionalization in the US Motion Picture Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(4), pages 509-528, December.
    4. Arthur Fishman & Rafael Rob, 2000. "Product Innovation by a Durable-Good Monpoly," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 237-252, Summer.
    5. Michael H. Riordan & Yongmin Chen, 2005. "Price and Variety in the Spokes Model," Discussion Papers 0405-20, Columbia University, Department of Economics.
    6. Jerome Adda & Russell Cooper, 1997. "Balladurette and Juppette: A Discrete Analysis of Scrapping Subsidies," NBER Working Papers 6048, National Bureau of Economic Research, Inc.
    7. de Meza, David & Ungern-Sternberg, Thomas von, 1982. "Monopoly, product diversity and welfare," Regional Science and Urban Economics, Elsevier, vol. 12(3), pages 313-324, August.
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