IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v59y2013i2p390-401.html
   My bibliography  Save this article

Vertical Differentiation with Variety-Seeking Consumers

Author

Listed:
  • Robert Zeithammer

    (UCLA Anderson School of Management, University of California, Los Angeles, Los Angeles, California 90095)

  • Raphael Thomadsen

    (UCLA Anderson School of Management, University of California, Los Angeles, Los Angeles, California 90095)

Abstract

We analyze price and quality competition in a vertically differentiated duopoly in which consumers have a preference for variety. The preference for variety is a consequence of diminishing marginal utility for repeated experiences with the same product. We find consumer variety seeking can either soften or intensify price competition, depending on the difference in firm qualities and the strength of consumer preference for variety. When the qualities are similar (or the consumer preference for variety is strong), prices and profits are higher than would be obtained in the absence of variety seeking. On the other hand, if qualities differ enough (or the preference for variety is weak), stronger preferences for variety are associated with more intense price competition and lower profits. When firms set their qualities before competing on price and the range of feasible qualities is restricted such that variety seeking softens competition, competing firms choose to minimally differentiate themselves from each other. The preference for variety can drive the firms to offer multiunit discounts, and the greater price flexibility from these discounts does not necessarily reduce profits relative to simple unit pricing. This paper was accepted by J. Miguel Villas-Boas, marketing.

Suggested Citation

  • Robert Zeithammer & Raphael Thomadsen, 2013. "Vertical Differentiation with Variety-Seeking Consumers," Management Science, INFORMS, vol. 59(2), pages 390-401, August.
    • Handle: RePEc:inm:ormnsc:v:59:y:2013:i:2:p:390-401
    DOI: 10.1287/mnsc.1120.1585
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.1120.1585
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.1120.1585?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Moshe Givon, 1984. "Variety Seeking Through Brand Switching," Marketing Science, INFORMS, vol. 3(1), pages 1-22.
    2. Michael J. Mazzeo, 2002. "Product Choice and Oligopoly Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 221-242, Summer.
    3. J. Miguel Villas-Boas, 2004. "Consumer Learning, Brand Loyalty, and Competition," Marketing Science, INFORMS, vol. 23(1), pages 134-145, December.
    4. S. Sajeesh & Jagmohan S. Raju, 2010. "Positioning and Pricing in a Variety Seeking Market," Management Science, INFORMS, vol. 56(6), pages 949-961, June.
    5. Minakshi Trivedi & Frank M. Bass & Ram C. Rao, 1994. "A Model of Stochastic Variety-Seeking," Marketing Science, INFORMS, vol. 13(3), pages 274-297.
    6. McAlister, Leigh & Pessemier, Edgar, 1982. "Variety Seeking Behavior: An Interdisciplinary Review," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 9(3), pages 311-322, December.
    7. K. Sridhar Moorthy, 1988. "Product and Price Competition in a Duopoly," Marketing Science, INFORMS, vol. 7(2), pages 141-168.
    8. McAlister, Leigh, 1982. "A Dynamic Attribute Satiation Model of Variety-Seeking Behavior," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 9(2), pages 141-150, September.
    9. Ratner, Rebecca K & Kahn, Barbara E & Kahneman, Daniel, 1999. "Choosing Less-Preferred Experiences for the Sake of Variety," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 26(1), pages 1-15, June.
    10. Liang Guo, 2006. "Consumption Flexibility, Product Configuration, and Market Competition," Marketing Science, INFORMS, vol. 25(2), pages 116-130, 03-04.
    11. 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.
    12. 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.
    13. Faison, Edmund W J, 1977. "The Neglected Variety Drive: A Useful Concept for Consumer Behavior," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 4(3), pages 172-175, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Le Wang & Paul Benjamin Lowry & Xin (Robert) Luo & Han Li, 2023. "Moving Consumers from Free to Fee in Platform-Based Markets: An Empirical Study of Multiplayer Online Battle Arena Games," Information Systems Research, INFORMS, vol. 34(1), pages 275-296, March.
    2. Nagengast, Liane & Evanschitzky, Heiner & Blut, Markus & Rudolph, Thomas, 2014. "New Insights in the Moderating Effect of Switching Costs on the Satisfaction–Repurchase Behavior Link," Journal of Retailing, Elsevier, vol. 90(3), pages 408-427.
    3. Didier Laussel & Joana Resende, 2022. "When Is Product Personalization Profit-Enhancing? A Behavior-Based Discrimination Model," Post-Print hal-03740642, HAL.
    4. Liyang Xiong & Honglei Yu & Zhanqing Wang, 2021. "Competition in a Variety Seeking Market With Brand Name Awareness," SAGE Open, , vol. 11(2), pages 21582440211, April.
    5. Pennerstorfer, Dieter & Schindler, Nora & Weiss, Christoph R. & Yontcheva, Biliana, 2020. "Income inequality and product variety: Empirical evidence," DICE Discussion Papers 353, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    6. Chi‐Hyon Lee & Manuela N. Hoehn‐Weiss & Samina Karim, 2021. "Competing both ways: How combining Porter's low‐cost and focus strategies hurts firm performance," Strategic Management Journal, Wiley Blackwell, vol. 42(12), pages 2218-2244, December.
    7. Bing Jing, 2017. "Behavior-Based Pricing, Production Efficiency, and Quality Differentiation," Management Science, INFORMS, vol. 63(7), pages 2365-2376, July.
    8. Dmitri Kuksov & Kangkang Wang, 2014. "The Bright Side of Loss Aversion in Dynamic and Competitive Markets," Marketing Science, INFORMS, vol. 33(5), pages 693-711, September.
    9. Jürgen Neumann, 2021. "When Biased Ratings Benefit the Consumer - An Economic Analysis of Online Ratings in Markets with Variety-Seeking Consumers," Working Papers Dissertations 77, Paderborn University, Faculty of Business Administration and Economics.
    10. Kaifu Zhang & Miklos Sarvary, 2015. "Differentiation with User-Generated Content," Management Science, INFORMS, vol. 61(4), pages 898-914, April.
    11. Didier Laussel & Joana Resende, 2022. "When Is Product Personalization Profit-Enhancing? A Behavior-Based Discrimination Model," Management Science, INFORMS, vol. 68(12), pages 8872-8888, December.
    12. Dominik Gutt & Philipp Herrmann & Mohammad S. Rahman, 2019. "Crowd-Driven Competitive Intelligence: Understanding the Relationship Between Local Market Competition and Online Rating Distributions," Information Systems Research, INFORMS, vol. 30(3), pages 980-994, September.
    13. Dominik Gutt & Philipp Herrmann & Mohammad S. Rahman, 2018. "Crowd-Driven Competitive Intelligence: Understanding the Relationship Between Local Market Competition and Online Rating Distributions," Working Papers Dissertations 41, Paderborn University, Faculty of Business Administration and Economics.
    14. Qihui Bu, 2024. "Transient Analysis for a Queuing System with Impatient Customers and Its Applications to the Pricing Strategy of a Video Website," Mathematics, MDPI, vol. 12(13), pages 1-14, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Liyang Xiong & Honglei Yu & Zhanqing Wang, 2021. "Competition in a Variety Seeking Market With Brand Name Awareness," SAGE Open, , vol. 11(2), pages 21582440211, April.
    3. Jürgen Neumann, 2021. "When Biased Ratings Benefit the Consumer - An Economic Analysis of Online Ratings in Markets with Variety-Seeking Consumers," Working Papers Dissertations 77, Paderborn University, Faculty of Business Administration and Economics.
    4. Irani-Kermani, Roozbeh & Jaenicke, Edward C., 2018. "Generalizing Variety Seeking Measurement from Brand Space to Product Attribute Space," 2018 Annual Meeting, August 5-7, Washington, D.C. 273818, Agricultural and Applied Economics Association.
    5. S. Sajeesh & Jagmohan S. Raju, 2010. "Positioning and Pricing in a Variety Seeking Market," Management Science, INFORMS, vol. 56(6), pages 949-961, June.
    6. Felipe Caro & Victor Martínez-de-Albéniz, 2012. "Product and Price Competition with Satiation Effects," Management Science, INFORMS, vol. 58(7), pages 1357-1373, July.
    7. Do-Hyung Park, 2019. "Virtuality Changes Consumer Preference: The Effect of Transaction Virtuality as Psychological Distance on Consumer Purchase Behavior," Sustainability, MDPI, vol. 11(23), pages 1-16, November.
    8. Ting-Hsiang Tseng, 2014. "The Impact Of Need For Variety On Country Image Effects," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 8(2), pages 45-53.
    9. Murray, Scott D. & Jin, Hyun Seung & Martin, Brett A.S., 2022. "The role of shopping orientation in variety-seeking behaviour," Journal of Business Research, Elsevier, vol. 145(C), pages 188-197.
    10. Wu, Pei-Hsun & Kao, Danny Tengti, 2011. "Goal orientation and variety seeking behavior: The role of decision task," Journal of Economic Psychology, Elsevier, vol. 32(1), pages 65-72, February.
    11. Yunchuan Liu & Rajeev K. Tyagi, 2011. "The Benefits of Competitive Upward Channel Decentralization," Management Science, INFORMS, vol. 57(4), pages 741-751, April.
    12. Jeong, Yuncheol & Maruyama, Masayoshi, 2018. "Positioning and pricing strategies in a market with switching costs and staying costs," Information Economics and Policy, Elsevier, vol. 44(C), pages 47-57.
    13. Nanarpuzha, Rajesh, 2013. "Modeling Situational Factors in Variety Seeking Behaviour: An Extension of the Lightning Bolt Model," IIMA Working Papers WP2013-12-04, Indian Institute of Management Ahmedabad, Research and Publication Department.
    14. Bathaee, Atieh, 2011. "Culture affects consumer behavior: Theoretical reflections and an illustrative example with Germany and Iran," Wirtschaftswissenschaftliche Diskussionspapiere 02/2011, University of Greifswald, Faculty of Law and Economics.
    15. 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.
    16. Nagengast, Liane & Evanschitzky, Heiner & Blut, Markus & Rudolph, Thomas, 2014. "New Insights in the Moderating Effect of Switching Costs on the Satisfaction–Repurchase Behavior Link," Journal of Retailing, Elsevier, vol. 90(3), pages 408-427.
    17. Wang, Xia & Sun, Luping & Keh, Hean Tat, 2013. "Consumer responses to variety in product bundles: The moderating role of evaluation mode," International Journal of Research in Marketing, Elsevier, vol. 30(4), pages 335-342.
    18. Jordan Etkin & Cassie Mogilner, 2016. "Does Variety Among Activities Increase Happiness?," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 43(2), pages 210-229.
    19. Mantrala, Murali K. & Levy, Michael & Kahn, Barbara E. & Fox, Edward J. & Gaidarev, Peter & Dankworth, Bill & Shah, Denish, 2009. "Why is Assortment Planning so Difficult for Retailers? A Framework and Research Agenda," Journal of Retailing, Elsevier, vol. 85(1), pages 71-83.
    20. Vakeel, Khadija Ali & Fudurić, Morana & Malthouse, Edward C., 2021. "Extending variety seeking to multi-sided platforms: Impact of new retailer listing," Journal of Retailing and Consumer Services, Elsevier, vol. 59(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:59:y:2013:i:2:p:390-401. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.