Product Line Pricing in a Vertically Differentiated Oligopoly
AbstractThis 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 ownered 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 InfoPaper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 14_10.
Date of creation: Jan 2010
Date of revision:
Pricing; Multiproduct firms; Personal Computers; Product Entry and Exit;
Other versions of this item:
- George Deltas & Thanasis Stengos & Eleftherios Zacharias, 2011. "Product line pricing in a vertically differentiated oligopoly," Canadian Journal of Economics, Canadian Economics Association, vol. 44(3), pages 907-929, August.
- George Deltas & Thanasis Stengos & Eleftherios Zacharias, 2010. "Product Line Pricing in a Vertically Differentiated Oligopoly," Working Papers 1010, University of Guelph, Department of Economics and Finance.
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-26 (All new papers)
- NEP-BEC-2010-06-26 (Business Economics)
- NEP-COM-2010-06-26 (Industrial Competition)
- NEP-IND-2010-06-26 (Industrial Organization)
- NEP-MIC-2010-06-26 (Microeconomics)
- NEP-MKT-2010-06-26 (Marketing)
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- Silvio Sticher, 2013. "Competitive Market Segmentation," Diskussionsschriften dp1313, Universitaet Bern, Departement Volkswirtschaft.
- Evdokia Dritsa & Eleftherios Zacharias, 2012. "Price Competition in a Duopoly Characterized by Positional Effects," Working Papers 12-21, NET Institute.
- 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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