We propose a framework for analyzing transformations of demand. Such transformations frequently stem from changes in the dispersion of consumers` valuations, which lead to rotations of the demand curve. In a wide variety of settings, profits are a U-shaped function of dispersion. A high level of dispersion is complemented by a niche posture, and low dispersion is complemented by a mass-market posture. We investigate numerous applications of our framework, including product design; advertising, marketing and sales advice; and the construction of quality-differentiated product lines. We also suggest a new taxonomy of advertising, distinguishing between hype, which shifts demand, and real information, which rotates demand.
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number
185.
Find related papers by JEL classification: D21 - Microeconomics - - Production and Organizations - - - Firm Behavior D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising
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