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Dynamic Product Diversity

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  • Caminal, Ramon

Abstract

The goal of this paper is to study the frequency of new product introductions in monopoly markets where demand is subject to transitory saturation. We focus on those types of goods for which consumers purchase at most one unit of each variety, but repeat purchases in the same product category. The model considers infinitely-lived, forward-looking consumers and firms. We show that the share of potential surplus that a monopolist is able to appropriate increases with the frequency of introduction of new products and the intensity of transitory saturation. If the latter is sufficiently strong then the rate of introduction of new products is higher than socially desirable (excessive dynamic product diversity).

Suggested Citation

  • Caminal, Ramon, 2012. "Dynamic Product Diversity," CEPR Discussion Papers 8990, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8990
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    References listed on IDEAS

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    More about this item

    Keywords

    demand cycles; product diversity; repeat purchases; transitory saturation;

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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