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Fat Products

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  • Alexei Alexandrov

Abstract

The economics literature generally considers products as points in some characteristics space. Starting with Hotelling, this served as a convenient assumption, yet with more products being flexible or self-customizable to some degree it makes sense to think that products have positive measure. I develop a model where ?rms can o¤er interval long 'fat' products in the spatial model of differentiation. Contrary to the standard results pro?ts of the firms can decrease with increased differentiation - there is a standard effect of lowering the incentive to cut prices, but there is also an incentive to provide more content sometimes resulting in lower profits. Consumer welfare increases unambiguously with respect to the standard model of Salop. I also find that it is profitable for firms to commit as an industry not to make fat products. If one firm is a leader and another is a follower, the leader accommodates the follower by settling for less pro?ts if differentiation is small.

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Bibliographic Info

Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1435.

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Date of creation: Nov 2006
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Handle: RePEc:nwu:cmsems:1435

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Keywords: self-customizable products; flexible products; product differentiation;

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References

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  1. Shy, Oz & Stenbacka, Rune, 2006. "Service hours with asymmetric distributions of ideal service time," International Journal of Industrial Organization, Elsevier, vol. 24(4), pages 763-771, July.
  2. GABSZEWICZ, Jean J. & LAUSSEL, Didier & SONNAC, Nathalie, . "Programming and advertising competition in the broadcasting industry," CORE Discussion Papers RP -1873, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  4. Yannis Bakos & Erik Brynjolfsson, 1999. "Bundling Information Goods: Pricing, Profits, and Efficiency," Management Science, INFORMS, vol. 45(12), pages 1613-1630, December.
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  7. R. Venkatesh & Wagner Kamakura, 2003. "Optimal Bundling and Pricing under a Monopoly: Contrasting Complements and Substitutes from Independently Valued Products," The Journal of Business, University of Chicago Press, vol. 76(2), pages 211-232, April.
  8. Ellickson, Paul, 2005. "Does Sutton Apply to Supermarkets?," Working Papers 05-05, Duke University, Department of Economics.
  9. Kenneth L. Judd, 1983. "Credible Spatial Preemption," Discussion Papers 577, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  11. Klemperer, Paul, 1992. "Equilibrium Product Lines: Competing Head-to-Head May Be Less Competitive," American Economic Review, American Economic Association, vol. 82(4), pages 740-55, September.
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Cited by:
  1. Takagoshi, Noritsugu & Matsubayashi, Nobuo, 2013. "Customization competition between branded firms: Continuous extension of product line from core product," European Journal of Operational Research, Elsevier, vol. 225(2), pages 337-352.
  2. Loginova, Oksana & Wang, X. Henry, 2013. "Mass customization in an endogenous-timing game with vertical differentiation," Economic Modelling, Elsevier, vol. 33(C), pages 164-173.
  3. Oksana Loginova & X. Henry Wang, 2008. "Mass Customization with Vertically Differentiated Products," Working Papers 08-33, NET Institute.
  4. Alexandrov, Alexei & Deb, Joyee, 2012. "Price discrimination and investment incentives," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 615-623.
  5. Oksana Loginova & X. Henry Wang, 2009. "Customization: Ideal Varieties, Product Uniqueness and Price Competition," Economics Bulletin, AccessEcon, vol. 29(4), pages 2573-2581.
  6. Bar-Isaac, Heski, 2009. "Breadth, depth, and competition," Economics Letters, Elsevier, vol. 103(2), pages 110-112, May.

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