Increasing sales by introducing non-salable items
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.
Volume (Year): 27 (2006)
Issue (Month): 8 ()
|Contact details of provider:|| Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Martin J. Osborne & Ariel Rubinstein, 1997.
"Games with Procedurally Rational Players,"
Department of Economics Working Papers
1997-02, McMaster University.
- Osborne, M-J & Rubinstein, A, 1997. "Games with Procedurally Rational Players," Papers 4-97, Tel Aviv.
- 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.
- David P. Myatt & Justin P. Johnson, 2002. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," Economics Series Working Papers 105, University of Oxford, Department of Economics.
- Canoy, Marcel & Peitz, Martin, 1997. "The Differentiation Triangle," Journal of Industrial Economics, Wiley Blackwell, vol. 45(3), pages 305-328, September.
- Marcel Canoy & Martin Peitz, 1997. "The differentiation triangle," Working Papers. Serie AD 1997-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Amartya Sen, 1997. "Maximization and the Act of Choice," Econometrica, Econometric Society, vol. 65(4), pages 745-780, July.
- Amartya Sen, 1996. "Maximization and the Act of Choice," Harvard Institute of Economic Research Working Papers 1766, Harvard - Institute of Economic Research.
- Sen, A., 1996. "Maximisation and the Act of Choice," Papers 270, Banca Italia - Servizio di Studi.
- 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.
- 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.
- 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.
- Raymond J. Deneckere & R. Preston McAfee, 1996. "Damaged Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(2), pages 149-174, 06.
When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:27:y:2006:i:8:p:631-641. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.