Equilibrium Demand Elasticities across Quality Segments
AbstractEmpirical studies find substantial differences in demand elasticities and associated markups among products of different quality. This paper analyzes the theoretical determinants of such variation. We present a simple model that allows for horizontal and vertical differentiation and accounts for endogenous entry. We find that most economic forces in our model, such as consumers’ price sensitivity, the scope for product differentiation, and sunk costs of entry, are likely to induce lower equilibrium demand elasticities for higher quality products. In contrast, other economic forces, such as marginal cost of production and the distribution (across consumers) of the willingness to pay for quality, may induce the opposite pattern. These results provide an organizing framework through which empirical findings may be interpreted, and may also help to predict variation in demand elasticities for markets in which empirical estimates of elasticities are unavailable or infeasible to obtain.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 550.
Length: 17 pages
Date of creation: 2006
Date of revision:
Other versions of this item:
- Coibion, Olivier & Einav, Liran & Hallak, Juan Carlos, 2007. "Equilibrium demand elasticities across quality segments," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 13-30, February.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Justin P. Johnson & David P. Myatt, 2003.
"Multiproduct Quality Competition: Fighting Brands and Product Line Pruning,"
American Economic Review,
American Economic Association, vol. 93(3), pages 748-774, June.
- David P. Myatt & Justin P. Johnson, 2002. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," Economics Series Working Papers 105, University of Oxford, Department of Economics.
- Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
- Neven, D. & Thisse, J-F., 1989. "On Quality And Variety Competition," CORE Discussion Papers 1989020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- Kurt R. Brekke & Robert Nuscheler & Odd Rune Straume, 2006.
"Quality and Location Choices under Price Regulation,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 15(1), pages 207-227, 03.
- Brekke, Kurt R. & Nuscheler, Robert & Straume, Odd Rune, 2002. "Quality and location choices under price regulation," Discussion Papers, Research Unit: Market Processes and Governance FS IV 02-28, Social Science Research Center Berlin (WZB).
- Brekke, Kurt R. & Nuscheler, Robert & Straume, Odd Rune, 2002. "Quality and location choices under price regulation," Working Papers in Economics 24/02, University of Bergen, Department of Economics.
- Jerry HAUSMAN & Gregory LEONARD & J. Douglas ZONA, 1994. "Competitive Analysis with Differentiated Products," Annales d'Economie et de Statistique, ENSAE, issue 34, pages 159-180.
- Canoy, Marcel & Peitz, Martin, 1997.
"The Differentiation Triangle,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 45(3), pages 305-28, September.
- Nevo, Aviv, 2001.
"Measuring Market Power in the Ready-to-Eat Cereal Industry,"
Econometric Society, vol. 69(2), pages 307-42, March.
- Nevo, Aviv, 1999. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Competition Policy Center, Working Paper Series qt7cm5p858, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
- Aviv Nevo, 1998. "Measuring Market Power in the Ready-to-Eat Cereal Industry," NBER Working Papers 6387, National Bureau of Economic Research, Inc.
- Nevo, Aviv, 1998. "Measuring Market Power in the Ready-To-Eat Cereal Industry," Research Reports 25164, University of Connecticut, Food Marketing Policy Center.
- Aviv Nevo, 2003. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Microeconomics 0303006, EconWPA.
- Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
- David Hummels & Volodymyr Lugovskyy, 2005. "Trade in Ideal Varieties: Theory and Evidence," NBER Working Papers 11828, National Bureau of Economic Research, Inc.
- Amil Petrin, 2002. "Quantifying the Benefits of New Products: The Case of the Minivan," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 705-729, August.
- Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
- Economides, Nicholas, 1993. "Quality variations in the circular model of variety-differentiated products," Regional Science and Urban Economics, Elsevier, vol. 23(2), pages 235-257, April.
- Alejandro Artopoulos & Daniel Friel & Juan Carlos Hallak, 2010. "Challenges of Exporting Differentiated Products to Developed Countries: The Case of SME-Dominated Sectors in a Semi-Industrialized Country," Research Department Publications 4677, Inter-American Development Bank, Research Department.
- James R. Markusen, 2010.
"Putting Per-Capita Income Back into Trade Theory,"
NBER Working Papers
15903, National Bureau of Economic Research, Inc.
- Bouamra-Mechemache, Zohra & Jianyu, Yu, 2013. "Production Standards, Competition and Vertical Relationship," TSE Working Papers 13-417, Toulouse School of Economics (TSE).
- Cristiana & Teodora Borota, 2011. "World Trade Patterns and Prices: The Role of Productivity and Quality Heterogeneity," Working papers 19, National Bank of Serbia.
- Bergès, Fabian & Hassan, Daniel & Monier-Dilhan, Sylvette, 2009.
"Are Consumers More Loyal to National Brands than to Private Labels?,"
TSE Working Papers
09-131, Toulouse School of Economics (TSE).
- Fabian Bergès & Daniel Hassan & Sylvette Monier-Dilhan, 2013. "Are Consumers More Loyal To National Brands Than To Private Labels?," Bulletin of Economic Research, Wiley Blackwell, vol. 65, pages s1-s16, 05.
- Namrata Gulati & Prabal Roy Chowdhury, 2010. "Income inequality, neighbourhood effects and product quality," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 10-06, Indian Statistical Institute, New Delhi, India.
- Benedetti Fasil, Cristiana & Borota, Teodora, 2010. "World Trade Patterns and Prices: The Role of Productivity and Quality Heterogeneity," Working Paper Series 2010:7, Uppsala University, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (FSPP Webmaster).
If references are entirely missing, you can add them using this form.