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Questioning Conventional Wisdom About Competition in Differentiated Markets


  • David Soberman



Managerial texts are full of conventional wisdom about competitive markets. Examples of such wisdom include the following ideas: (a) for success, differentiation is a strategic imperative, (b) the viability of a firm is seriously threatened when a competitor is significantly better at reaching and communicating with potential consumers and (c) premium pricing in a market with low levels of differentiation is often evidence of collusive behaviour. These ideas are based on analysis where consumers are assumed to have complete and accurate information about the important alternatives in a category. The objective of this paper is to demonstrate the fallibility of these ideas in a general context. The reality of most small-ticket consumer categories is that consumers are not fully informed about all the alternatives. This is because the majority of information for small-ticket purchases comes from advertising and not all potential consumers are exposed to advertising from every brand. By relaxing the simple assumption that consumers are fully informed, I show that the three ideas cited above are frequently incorrect. Copyright Springer Science + Business Media, Inc. 2005

Suggested Citation

  • David Soberman, 2005. "Questioning Conventional Wisdom About Competition in Differentiated Markets," Quantitative Marketing and Economics (QME), Springer, vol. 3(1), pages 41-70, January.
  • Handle: RePEc:kap:qmktec:v:3:y:2005:i:1:p:41-70 DOI: 10.1007/s11129-005-0299-1

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    References listed on IDEAS

    1. Stiglitz, Joseph E., 1989. "Imperfect information in the product market," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 13, pages 769-847 Elsevier.
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    6. David A. Soberman, 2004. "Research Note: Additional Learning and Implications on the Role of Informative Advertising," Management Science, INFORMS, vol. 50(12), pages 1744-1750, December.
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    Cited by:

    1. Andreas Widenhorn & Klaus Salhofer, 2014. "Price Sensitivity Within and Across Retail Formats," Agribusiness, John Wiley & Sons, Ltd., vol. 30(2), pages 184-194, March.
    2. Kathleen Cleeren & Frank Verboven & Marnik G. Dekimpe & Katrijn Gielens, 2010. "Intra- and Interformat Competition Among Discounters and Supermarkets," Marketing Science, INFORMS, vol. 29(3), pages 456-473, 05-06.


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