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Product variety and price strategy in the ski manufacturing industry

  • Nicoletta Corrocher
  • Marco Guerzoni

    ()

The present paper aims at examining the role of variety in the ski manufacturing industry and its relevance in firms' price setting strategies. In particular, it intends to investigate and empirically test two hypotheses concerning the relation between variety and prices. The first concerns the relationship between product quality/complexity and prices. The second refers to the existence of two kinds of varieties having opposite effects on price formation: market-related variety and production-related variety. We are able to empirically disentangle these two effects, by using variety in service characteristics as a proxy for market-related variety and variety in technical characteristics for production-related variety. Our empirical investigation confirms that prices are positively affected by product complexity and quality and positively affected by variety at the level of service characteristics. This means that a high degree of product variety allows firms to charge a premium price on consumers, who are able to find the product that best meet their needs and are therefore willing to pay a higher price. On the contrary, variety at the level of technical characteristics negatively impact on prices, because in a context where a dominant design emerges and new varieties are not radically different, gains in economies of scale and scope outweigh the cost of the increased flexibility in the equipment required to produce variety. The resulting decrease in marginal costs negatively impinges upon prices.

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File URL: http://hdl.handle.net/10.1007/s00191-009-0145-9
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Article provided by Springer in its journal Journal of Evolutionary Economics.

Volume (Year): 19 (2009)
Issue (Month): 4 (August)
Pages: 471-486

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Handle: RePEc:spr:joevec:v:19:y:2009:i:4:p:471-486
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  1. Frenken, Koen & Saviotti, Paolo P. & Trommetter, Michel, 1999. "Variety and niche creation in aircraft, helicopters, motorcycles and microcomputers," Research Policy, Elsevier, vol. 28(5), pages 469-488, June.
  2. Andreas IRMEN & Jean-François THISSE, 1996. "Competition in Multi-Characteristics Spaces: Hotelling Was Almost Right," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9613, Université de Lausanne, Faculté des HEC, DEEP.
  3. Saviotti, P. P. & Metcalfe, J. S., 1984. "A theoretical approach to the construction of technological output indicators," Research Policy, Elsevier, vol. 13(3), pages 141-151, June.
  4. Gabszewicz, Jean Jaskold & Thisse, Jacques-Francois, 1986. "On the Nature of Competition with Differentiated Products," Economic Journal, Royal Economic Society, vol. 96(381), pages 160-72, March.
  5. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
  6. B. Curtis Eaton & Richard G. Lipsey, 1979. "Microeconomic Foundations of Central Place Theory," Working Papers 327, Queen's University, Department of Economics.
  7. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  8. Neven, D. & Thisse, J-F., 1989. "On Quality And Variety Competition," CORE Discussion Papers 1989020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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