Positioning and Pricing in a Variety Seeking Market
We study competitive positioning and pricing strategies in markets where consumers seek variety. Variety seeking behavior is modeled as a decrease in the willingness to pay for the product purchased on the previous purchase occasion. Using a three-stage Hotelling-type model, we show that the presence of variety seeking consumers reduces product differentiation offered in equilibrium, thereby explaining some otherwise counterintuitive findings in empirical research. We find that firms charge higher prices in Period 1 and lower prices in Period 2. The lower price in Period 2 represents the price incentive that firms need to offer to prevent the variety seeking consumers from switching. Furthermore, we find that the observed switching in a market may not fully capture the true magnitude of the underlying variety seeking tendencies among consumers. Finally, we show that the presence of variety seeking consumers leads to lower firm profits and a higher consumer surplus. Surplus increases for variety seeking consumers as well as regular consumers. Therefore, the presence of variety seeking consumers benefits everyone in the market.
Volume (Year): 56 (2010)
Issue (Month): 6 (June)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Moshe Givon, 1984. "Variety Seeking Through Brand Switching," Marketing Science, INFORMS, vol. 3(1), pages 1-22.
- Byung-Do Kim & Mengze Shi & Kannan Srinivasan, 2001. "Reward Programs and Tacit Collusion," Marketing Science, INFORMS, vol. 20(2), pages 99-120, June.
- Kapil Bawa, 1990. "Modeling Inertia and Variety Seeking Tendencies in Brand Choice Behavior," Marketing Science, INFORMS, vol. 9(3), pages 263-278.
- Preyas S. Desai & Devavrat Purohit, 1999. "Competition in Durable Goods Markets: The Strategic Consequences of Leasing and Selling," Marketing Science, INFORMS, vol. 18(1), pages 42-58.
- Caplin, Andrew & Nalebuff, Barry, 1991.
"Aggregation and Imperfect Competition: On the Existence of Equilibrium,"
Econometric Society, vol. 59(1), pages 25-59, January.
- Andrew Caplin & Barry Nalebuff, 1990. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Cowles Foundation Discussion Papers 937, Cowles Foundation for Research in Economics, Yale University.
- Z. John Zhang & Aradhna Krishna & Sanjay K. Dhar, 2000. "The Optimal Choice of Promotional Vehicles: Front-Loaded or Rear-Loaded Incentives?," Management Science, INFORMS, vol. 46(3), pages 348-362, March.
- Neven, Damien, 1985. "Two Stage (Perfect) Equilibrium in Hotelling's Model," Journal of Industrial Economics, Wiley Blackwell, vol. 33(3), pages 317-325, March.
- Pradeep K. Chintagunta, 1998. "Inertia and Variety Seeking in a Model of Brand-Purchase Timing," Marketing Science, INFORMS, vol. 17(3), pages 253-270.
- McAlister, Leigh & Pessemier, Edgar, 1982. " Variety Seeking Behavior: An Interdisciplinary Review," Journal of Consumer Research, Oxford University Press, vol. 9(3), pages 311-322, December.
- Gabszewicz, Jean Jaskold & Thisse, Jacques-Francois, 1986. "On the Nature of Competition with Differentiated Products," Economic Journal, Royal Economic Society, vol. 96(381), pages 160-172, March.
- GABSZEWICZ, Jean J. & THISSE, Jacques-François, "undated". "On the nature of competition with differentiated products," CORE Discussion Papers RP 685, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Anderson, Simon P, 1988. "Equilibrium Existence in the Linear Model of Spatial Competition," Economica, London School of Economics and Political Science, vol. 55(220), pages 479-491, November.
- Anderson, S., 1986. "Equilibrium existence in the linear model of spatial competition," CORE Discussion Papers 1986013, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Barbara E. Kahn & Jagmohan S. Raju, 1991. "Effects of Price Promotions on Variety-Seeking and Reinforcement Behavior," Marketing Science, INFORMS, vol. 10(4), pages 316-337.
- McAlister, Leigh, 1982. " A Dynamic Attribute Satiation Model of Variety-Seeking Behavior," Journal of Consumer Research, Oxford University Press, vol. 9(2), pages 141-150, September.
- Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring.
- Rajeev K. Tyagi, 2000. "Sequential Product Positioning Under Differential Costs," Management Science, INFORMS, vol. 46(7), pages 928-940, July.
- P. B. Seetharaman & Hai Che, 2009. "Price Competition in Markets with Consumer Variety Seeking," Marketing Science, INFORMS, vol. 28(3), pages 516-525, 05-06.
- Tabuchi, Takatoshi & Thisse, Jacques-Francois, 1995. "Asymmetric equilibria in spatial competition," International Journal of Industrial Organization, Elsevier, vol. 13(2), pages 213-227.
- Tabuchi, T. & Thisse, J.-F., "undated". "Asymetric equilibria in spatial competition," CORE Discussion Papers RP 1151, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Glazer, Amihai & Gradstein, Mark & Konrad, Kai A, 1998. "The Electoral Politics of Extreme Policies," Economic Journal, Royal Economic Society, vol. 108(451), pages 1677-1685, November.
When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:56:y:2010:i:6:p:949-961. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)
If references are entirely missing, you can add them using this form.