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Strategic Product Choice and Niche Markets

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  • Pepall, Lynne

Abstract

This paper presents a model of strategic product choice when consumer preferences combine features of both horizontal and vertical product differentiation. Consumers disagree on what amount of a "special" characteristic makes for a better product, but those who prefer more of this attribute are willing to pay more for it. Within this demand structure, I examine the advantages of first-mover firms. I find that such firms typically do best in markets where the maximum degree of product differentiation is limited by preferences rather than technology. These are "niche markets." Follower firms do better in markets in which the range of preferences is broad relative to the span of feasible goods. Copyright 1992 by MIT Press.

Suggested Citation

  • Pepall, Lynne, 1992. "Strategic Product Choice and Niche Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(2), pages 397-417, Summer.
    • Handle: RePEc:bla:jemstr:v:1:y:1992:i:2:p:397-417
    DOI: 10.1111/j.1430-9134.1992.00397.x
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    References listed on IDEAS

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    1. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(1), pages 3-13.
    2. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    3. W.J. Lane, 1980. "Product Differentiation in a Market with Endogenous Sequential Entry," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 237-260, Spring.
    4. Beath,John & Katsoulacos,Yannis, 1991. "The Economic Theory of Product Differentiation," Cambridge Books, Cambridge University Press, number 9780521335522, January.
    5. B. Curtis Eaton & Myrna Holtz Wooders, 1985. "Sophisticated Entry in a Model of Spatial Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 282-297, Summer.
    6. Edward C. Prescott & Michael Visscher, 1977. "Sequential Location among Firms with Foresight," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 378-393, Autumn.
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    Cited by:

    1. Burak Dindaroglu, 2023. "Product design in monopolistic competition," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(3), pages 471-488, September.
    2. Georg Götz, 2002. "Spatial Competition, Sequential Entry, and Technology choice," Vienna Economics Papers 0215, University of Vienna, Department of Economics.
    3. ., 2013. "Market niches, competition and economic performance: more clues from ecology?," Chapters, in: Competition, Diversity and Economic Performance, chapter 8, pages 160-182, Edward Elgar Publishing.
    4. Tisdell, Clem & Seidl, Irmi, 2004. "Niches and economic competition: implications for economic efficiency, growth and diversity," Structural Change and Economic Dynamics, Elsevier, vol. 15(2), pages 119-135, June.
    5. Jonathan D. Bohlmann & Peter N. Golder & Debanjan Mitra, 2002. "Deconstructing the Pioneer's Advantage: Examining Vintage Effects and Consumer Valuations of Quality and Variety," Management Science, INFORMS, vol. 48(9), pages 1175-1195, September.
    6. Cariola, Monica, 1999. "A high-potential sector: titanium metal: Oligopolistic policies and technological constraints as main limits to its development," Resources Policy, Elsevier, vol. 25(3), pages 151-159, September.

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