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Strategic Product Choice and Niche Markets


  • Pepall, Lynne


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

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    References listed on IDEAS

    1. Kihlstrom, Richard E & Riordan, Michael H, 1984. "Advertising as a Signal," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 427-450, June.
    2. Schmalensee, Richard, 1978. "A Model of Advertising and Product Quality," Journal of Political Economy, University of Chicago Press, vol. 86(3), pages 485-503, June.
    3. Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 63-81.
    4. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    5. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
    6. repec:hoo:wpaper:91-5 is not listed on IDEAS
    7. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
    8. Archibald, Robert B & Haulman, Clyde A & Moody, Carlisle E, Jr, 1983. " Quality, Price, Advertising, and Published Quality Ratings," Journal of Consumer Research, Oxford University Press, vol. 9(4), pages 347-356, March.
    9. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-329, March-Apr.
    10. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
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    Cited by:

    1. 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.
    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. 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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