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Restoring the Principle of Minimum Differentiation in Product Positioning

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  • Rhee, Byong-Duk, et al

Abstract

Most research on product positioning supports the idea of differentiation. Product standardization (i.e., minimum differentiation) occurs only under very limiting assumptions. Yet, similar products are often observed in the marketplace. We attempt to restore the case for standardization by using more realistic assumptions than in previous work. We assume that consumers consider not only observable attributes in brand choice, but also attributes that are unobservable by the firms. We find that standardization is an equilibrium when consumers exhibit sufficient heterogeneity along the unobservable attributes under both positioning with exogenously given prices and price competition. We also show that, under insufficient heterogeneity along the unobservable attribute, our results coincide with past research that argues in favor of differentiation. Coauthors are Andre de Palma, Claes Fornell, and Jacques-Francois Thisse. Copyright 1992 by MIT Press.

Suggested Citation

  • Rhee, Byong-Duk, et al, 1992. "Restoring the Principle of Minimum Differentiation in Product Positioning," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(3), pages 475-505, Fall.
  • Handle: RePEc:bla:jemstr:v:1:y:1992:i:3:p:475-505
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    Cited by:

    1. Timothy Sorenson, 1999. "Product Location with Foresight," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 14(3), pages 281-292, May.
    2. Ching-Chih Tseng & Wen-Jung Liang & Kuang-Cheng Andy Wang, 2010. "Spatial agglomeration with vertical differentiation," Papers in Regional Science, Wiley Blackwell, vol. 89(4), pages 841-858, November.
    3. Erkal, Nisvan, 2007. "Buyer-supplier interaction, asset specificity, and product choice," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 988-1010, October.
    4. Wen-Jung Liang & Kuang-Cheng Wang & Hong-Ren Din, 2014. "Spatial Competition and Flexible Manufacturing with Spatially Discriminatory Pricing," ERSA conference papers ersa14p234, European Regional Science Association.
    5. Matsumura, Toshihiro & Shimizu, Daisuke, 2005. "Spatial Cournot competition and economic welfare: a note," Regional Science and Urban Economics, Elsevier, vol. 35(6), pages 658-670, November.
    6. Mai, Chao-cheng & Peng, Shin-kun, 1999. "Cooperation vs. competition in a spatial model," Regional Science and Urban Economics, Elsevier, vol. 29(4), pages 463-472, July.
    7. António Brandão & Joana Pinho, 2015. "Asymmetric Information And Exchange Of Information About Product Differentiation," Bulletin of Economic Research, Wiley Blackwell, vol. 67(2), pages 166-185, April.
    8. Berno Buechel & Jan F. Klein, 2016. "Restrictions in Spatial Competition: The Effects on Firms and Consumers," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 33(1), pages 157-172, August.
    9. Stefano Colombo, 2013. "Differentiated Bertrand markets: restoring the minimum differentiation principle," Letters in Spatial and Resource Sciences, Springer, vol. 6(2), pages 103-108, July.
    10. Aguirre, Inaki & Paz Espinosa, Maria, 2004. "Product differentiation with consumer arbitrage," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 219-239, February.
    11. Matteo Bassi & Marco Pagnozzi & Salvatore Piccolo, 2015. "Product Differentiation by Competing Vertical Hierarchies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(4), pages 904-933, October.
    12. Liang, Wen-Jung & Mai, Chao-Cheng, 2006. "Validity of the principle of minimum differentiation under vertical subcontracting," Regional Science and Urban Economics, Elsevier, vol. 36(3), pages 373-384, May.
    13. Wen-Jung Liang & Yen-Ju Lin & Hong Hwang, 2012. "Heterogeneous duopoly, spatially discriminatory pricing, and optimal location," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 49(3), pages 845-860, December.
    14. Zsolt Katona, 2015. "Democracy in product design: Consumer participation and differentiation strategies," Quantitative Marketing and Economics (QME), Springer, vol. 13(4), pages 359-394, December.
    15. Christou, Charalambos & Vettas, Nikolaos, 2005. "Location choices under quality uncertainty," Mathematical Social Sciences, Elsevier, vol. 50(3), pages 268-278, November.
    16. Rhee, Byong-Duk, 2006. "First-mover disadvantages with idiosyncratic consumer tastes along unobservable characteristics," Regional Science and Urban Economics, Elsevier, vol. 36(1), pages 99-117, January.

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