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Product Line Pricing in a Vertically Differentiated Oligopoly

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Author Info

  • George Deltas

    ()
    (Department of Economics, University of Illinois, U.-C.)

  • Thanasis Stengos

    ()
    (Department of Economics,University of Guelph)

  • Eleftherios Zacharias

    ()
    (Department of Economics, Athens University of Business and Economics)

Abstract

This paper empirically examines the joint pricing decision of products in a firm's product line. When products are distinguished by a vertical characteristic, those products with higher values of that characteristic will command higher prices. We investigate whether, holding the value of the characteristic constant, there is a price premium for products on the industry and/or the firm frontier, i.e., for the products with the highest value of the characteristic in the market or in a firm's product line. The existence of price premia for lower ranked products is also investigated. Finally, the paper investigates whether firms set prices to avoid cannibalizing the other products in their portfolio, whether competition with rival firms is stronger for products that are closer to the frontier compared to other products, and whether a product's price declines with the time it is offered by a firm. Using personal computer price data, we show that prices decline with the distance from the industry and firm frontiers. We find evidence that consumer tastes for brands is stronger for the consumers of frontier products (and thus competition between firms weaker in the top end of the market). Finally, there is evidence that a product's price is higher if a firm offers products with the immediately faster and immediately slower computer chip (holding the total number of a firm's offerings constant), possibly as an attempt way to reduce cannibalization.

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Bibliographic Info

Paper provided by University of Guelph, Department of Economics and Finance in its series Working Papers with number 1010.

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Length: 29
Date of creation: 2010
Date of revision:
Handle: RePEc:gue:guelph:2010-10.

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Related research

Keywords: Pricing; Multiproduct rms; Personal Computers; Product Entry and Exit;

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Cited by:
  1. Evdokia Dritsa & Eleftherios Zacharias, 2012. "Price Competition in a Duopoly Characterized by Positional Effects," Working Papers 12-21, NET Institute.
  2. Silvio Sticher, 2013. "Competitive Market Segmentation," Diskussionsschriften dp1313, Universitaet Bern, Departement Volkswirtschaft.
  3. Tommaso Ciarli & Andre' Lorentz & Maria Savona & Marco Valente, 2012. "The role of technology, organisation, and demand in growth and income distribution," LEM Papers Series 2012/06, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

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