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Beyond plain vanilla: Modeling joint product assortment and pricing decisions

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  • Michaela Draganska
  • Michael Mazzeo
  • Katja Seim

Abstract

In this paper, we take a first step toward exploring empirically the product assortment strategies of oligopolistic firms. Our starting point is a discrete- choice demand model for differentiated products. We incorporate the demand model into an equilibrium supply model, in which firms compete by first choosing which products to offer and then by setting prices. We show how modeling joint product assortment and pricing decisions enriches standard product choice models by allowing insights into how demand characteristics affect firms' product offerings in a competitive environment. We furthermore demonstrate that incorporating endogenous product choice into demand models is essential for policy simulations (e.g., mergers) as it entails at times dramatically different welfare assessments than the common assumption that product assortments are exogenous.
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Suggested Citation

  • Michaela Draganska & Michael Mazzeo & Katja Seim, 2009. "Beyond plain vanilla: Modeling joint product assortment and pricing decisions," Quantitative Marketing and Economics (QME), Springer, vol. 7(2), pages 105-146, June.
    • Handle: RePEc:kap:qmktec:v:7:y:2009:i:2:p:105-146
    DOI: 10.1007/s11129-008-9047-7
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    More about this item

    Keywords

    Product assortment decisions; Multi-product firms; Discrete games; L0; L1; L2; L8; M3;
    All these keywords.

    JEL classification:

    • L0 - Industrial Organization - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L8 - Industrial Organization - - Industry Studies: Services
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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