Variety: Consumer Choice and Optimal Diversity
AbstractConsumers choose from among the varieties of two brands and an outside good using order statistics. We analytically derive demand functions conditional on their valuations of the varieties being distributed independently uniform. Based on this theory, we estimate a threeparameter empirical version of the model for the soft-drink market. These estimates are used to determine the effects of changes in the number of varieties on demand curves and consumer welfare. We use our estimates to compare the profit-maximizing number of varieties within a grocery store to the socially optimal number and find that consumer surplus and welfare would increase with more variety.
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Bibliographic InfoPaper provided by University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy in its series Food Marketing Policy Center Research Reports with number 115.
Length: 40 pages
Date of creation: Jan 2009
Date of revision:
varieties; product line length; consumer surplus; welfare; demand; order statistics; oligopolistic;
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