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Increasing sales by introducing non-salable items

Author

Listed:
  • Kobi Kriesler

    (Department of Economics, Bar-Ilan University, Ramat Gan, 52900, Israel)

  • Shmuel Nitzan

    (Department of Economics, Bar-Ilan University, Ramat Gan, 52900, Israel)

Abstract

Rationality implies that adding 'irrelevant' and, in particular, inferior alternatives to the opportunity set cannot increase the choice probability of some other alternative. In this study, we propose a novel approach that can rationalize an intended addition of such alternatives because it strictly increases the choice probability of some existing alternative. The driving force behind the existence and extent of such an increase is the random nature of individual preferences, that implies intransitivity, and the random nature of the applied choice procedures. We study the case of a firm interested in increasing the sales of some of its existing products by introducing a new and inferior (non-salable) product. Our main results focus on the feasibility and potential advantage of a successful such strategy. We first establish necessary and sufficient conditions for an increase in the sale probability and then derive the maximal possible absolute and relative increase in this probability, when the firm has extremely limited information on the characteristics of the consumers. We then derive analogous results, assuming that the existing line of products consists of just two items and that the firm has accurate information on the consumers' stochastic preferences over the existing products. These later results are illustrated using some experimental evidence. The applicability of the approach is finally briefly discussed in the context of branding policy. Copyright © 2006 John Wiley & Sons, Ltd.

Suggested Citation

  • Kobi Kriesler & Shmuel Nitzan, 2006. "Increasing sales by introducing non-salable items," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(8), pages 631-641.
  • Handle: RePEc:wly:mgtdec:v:27:y:2006:i:8:p:631-641
    DOI: 10.1002/mde.1295
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    References listed on IDEAS

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    1. Shmuel Nitzan & Eyal Baharad, 2000. "Extended preferences and freedom of choice," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 17(4), pages 629-637.
    2. Klemperer, Paul, 1992. "Equilibrium Product Lines: Competing Head-to-Head May Be Less Competitive," American Economic Review, American Economic Association, vol. 82(4), pages 740-755, September.
    3. Amartya Sen, 1997. "Maximization and the Act of Choice," Econometrica, Econometric Society, vol. 65(4), pages 745-780, July.
    4. Raymond J. Deneckere & R. Preston McAfee, 1996. "Damaged Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(2), pages 149-174, June.
    5. Justin P. Johnson & David P. Myatt, 2003. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," American Economic Review, American Economic Association, vol. 93(3), pages 748-774, June.
    6. Osborne, Martin J & Rubinstein, Ariel, 1998. "Games with Procedurally Rational Players," American Economic Review, American Economic Association, vol. 88(4), pages 834-847, September.
    7. Canoy, Marcel & Peitz, Martin, 1997. "The Differentiation Triangle," Journal of Industrial Economics, Wiley Blackwell, vol. 45(3), pages 305-328, September.
    8. Bandyopadhyay, Taradas & Dasgupta, Indraneel & Pattanaik, Prasanta K., 1999. "Stochastic Revealed Preference and the Theory of Demand," Journal of Economic Theory, Elsevier, vol. 84(1), pages 95-110, January.
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