Product Variety under Brand Influence: An Empirical Investigation of Personal Computer Demand
AbstractPrior 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 InfoPaper provided by EconWPA in its series Industrial Organization with number 0205004.
Date of creation: 17 May 2002
Date of revision: 13 Dec 2002
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product variety; brand value; discrete choice; similarity; cannibalization;
Find related papers by JEL classification:
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
- M10 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - General
- M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing
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