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Product Variety under Brand Influence: An Empirical Investigation of Personal Computer Demand

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  • Kai-Lung HUI

    (National University of Singapore)

Abstract

Prior research suggests that brand may influence consumer preference for differentiated products. However, the extant literature does not measure how brand value affects product similarity and consumer choice. This paper examines demand response to the proliferation of personal computers (PCs). Using both the central processing unit (CPU) and brand as segmentation variables, I construct a two-level nested generalized extreme value (GEV) discrete choice model to estimate the brand values and product similarities of a set of PC vendors. With these estimates, I infer the relative efficacy of product variety for firms which possess different degrees of brand values. My results suggest that consumers treat PCs from the same firm as close substitutes, and the proximity of the PCs correlates positively with the firms?brand values. This finding suggests that there is decreasing demand returns to product variety for branded multiproduct firms. I discuss a few possible drivers of brand value, and explore the significance of product line extension in building long-term brand reputation.

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Bibliographic Info

Paper provided by EconWPA in its series Industrial Organization with number 0205004.

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Date of creation: 17 May 2002
Date of revision: 13 Dec 2002
Handle: RePEc:wpa:wuwpio:0205004

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Keywords: product variety; brand value; discrete choice; similarity; cannibalization;

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  1. Katz, Michael L, 1984. "Firm-Specific Differentiation and Competition among Multiproduct Firms," The Journal of Business, University of Chicago Press, vol. 57(1), pages S149-66, January.
  2. Barry L. Bayus & William P. Putsis, Jr., 1999. "Product Proliferation: An Empirical Analysis of Product Line Determinants and Market Outcomes," Marketing Science, INFORMS, vol. 18(2), pages 137-153.
  3. Kelvin Lancaster, 1990. "The Economics of Product Variety: A Survey," Marketing Science, INFORMS, vol. 9(3), pages 189-206.
  4. John Paul MacDuffie & Kannan Sethuraman & Marshall L. Fisher, 1996. "Product Variety and Manufacturing Performance: Evidence from the International Automotive Assembly Plant Study," Management Science, INFORMS, vol. 42(3), pages 350-369, March.
  5. Daniel McFadden, 1977. "Modelling the Choice of Residential Location," Cowles Foundation Discussion Papers 477, Cowles Foundation for Research in Economics, Yale University.
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  8. Gilbert, Richard J. & Matutes, Carmen, 1989. "Product Line Rivalry with Brand Differentiation," Department of Economics, Working Paper Series qt1nr3k6nk, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  9. Preyas S. Desai, 2001. "Quality Segmentation in Spatial Markets: When Does Cannibalization Affect Product Line Design?," Marketing Science, INFORMS, vol. 20(3), pages 265-283, August.
  10. Wagner A. Kamakura & Byung-Do Kim & Jonathan Lee, 1996. "Modeling Preference and Structural Heterogeneity in Consumer Choice," Marketing Science, INFORMS, vol. 15(2), pages 152-172.
  11. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
  12. Sunder Kekre & Kannan Srinivasan, 1990. "Broader Product Line: A Necessity to Achieve Success?," Management Science, INFORMS, vol. 36(10), pages 1216-1232, October.
  13. Hau L. Lee & Christopher S. Tang, 1997. "Modelling the Costs and Benefits of Delayed Product Differentiation," Management Science, INFORMS, vol. 43(1), pages 40-53, January.
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