Cost leadership and pricing in conspicuous goods markets
We study competitive positioning and pricing strategies in markets with negative consumption externalities. Negative consumption externality is modeled as a decrease in preference for a product as more consumers purchase the same product. Using a two stage Hotelling type model, we show that a cost leader prices higher than the cost disadvantaged firm when the magnitude of negative consumption externality in the market is below a threshold otherwise the cost leader prices lower than the cost disadvantaged firm. Also, increase in population density decreases price differential between the cost leader and the cost disadvantaged firm.
Volume (Year): 30 (2010)
Issue (Month): 4 ()
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