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Product Functionality, Competition, And Multipurchasing

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  • Simon P. Anderson
  • Øystein Foros
  • Hans Jarle Kind

Abstract

The more functionalities a good offers, the greater is its perceived quality. Equilibrium prices in standard spatial competition models depend solely on quality differences. We assume that new functionalities are more appreciated the closer a product is to a consumer's ideal variety. Prices are then increasing in functionality levels. Furthermore, we endogenize whether consumers buy only one of two varieties (single‐purchase) or both (multipurchase). Under multipurchase, there might be a hump‐shaped relationship between equilibrium prices and functionality levels. Therefore, it could be optimal for each supplier to sacrifice sales and set prices so high that multipurchase is eliminated.

Suggested Citation

  • Simon P. Anderson & Øystein Foros & Hans Jarle Kind, 2017. "Product Functionality, Competition, And Multipurchasing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58(1), pages 183-210, February.
    • Handle: RePEc:wly:iecrev:v:58:y:2017:i:1:p:183-210
    DOI: 10.1111/iere.12213
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    References listed on IDEAS

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    5. Madjid Tavana & Salman Nazari-Shirkouhi & Hamidreza Farzaneh Kholghabad, 2021. "An integrated quality and resilience engineering framework in healthcare with Z-number data envelopment analysis," Health Care Management Science, Springer, vol. 24(4), pages 768-785, December.
    6. Wu, Jie & Li, Yunbing & Dong, Yu & Zha, Yong, 2023. "Sponsored data: A game-theoretic model with consumer multihoming behaviour," European Journal of Operational Research, Elsevier, vol. 307(2), pages 731-744.
    7. Aizawa, Hiroki & Kono, Tatsuhito, 2022. "Two-dimensional Geographical Position as a Factor in Determining the Growth and Decline of Retail Agglomeration," MPRA Paper 112274, University Library of Munich, Germany.
    8. Frank Stähler & Leander Stähler, 2022. "Copyright Protection in the Digital Single Market: Potential Consequences for Content Platform Competition," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 61(1), pages 73-94, August.
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    10. Bisceglia, Michele, 2023. "The unbundling of journalism," European Economic Review, Elsevier, vol. 158(C).

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