Market Segmentation Strategies of Multiproduct Firms
We analyze a multiproduct duopoly and ask whether firms should offer general purpose products or tailor their offerings to fit specific consumer needs. There are two effects of offering a targeted product: (i) if a consumer's favorite product is offered, her utility increases because there is a better fit between product and preferences; (ii) if her favorite product is not offered, the consumer's utility decreases because she gets a product that is not tailored to her needs at all. Previous work has not considered these two effects jointly and has therefore not been able to capture the tradeoff inherent in market segmentation: for some consumers utility increases due to increased "fit" whereas for others utility decreases due to increased "misfit." We show that in addition to the degree of fit and misfit, the intensity of competition and the fixed cost of offering an additional product determine firms' market segmentation strategies.
|Date of creation:||Nov 2003|
|Contact details of provider:|| Postal: Stanford University, Stanford, CA 94305-5015|
Phone: (650) 723-2146
Web page: http://gsbapps.stanford.edu/researchpapers/
More information through EDIRC
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.:
- Thomas von Ungern-Sternberg, 1988. "Monopolistic Competition and General Purpose Products," Review of Economic Studies, Oxford University Press, vol. 55(2), pages 231-246.
- Brander, James A & Eaton, Jonathan, 1984.
"Product Line Rivalry,"
American Economic Review,
American Economic Association, vol. 74(3), pages 323-334, June.
- James Brander & Jonathan Eaton, 1982. "Product Line Rivalry," Working Papers 519, Queen's University, Department of Economics.
- Mizuno, Toshihide, 2003. "On the existence of a unique price equilibrium for models of product differentiation," International Journal of Industrial Organization, Elsevier, vol. 21(6), pages 761-793, June.
- Economides, Nicholas, 1989. "Quality variations and maximal variety differentiation," Regional Science and Urban Economics, Elsevier, vol. 19(1), pages 21-29, February.
- Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
- Andrew Caplin & Barry Nalebuff, 1990. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Cowles Foundation Discussion Papers 937, Cowles Foundation for Research in Economics, Yale University.
- Martinez-Giralt, Xavier & Neven, Damien J, 1988. "Can Price Competition Dominate Market Segmentation?," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 431-442, June.
- McKelvey, Richard D. & McLennan, Andrew, 1996. "Computation of equilibria in finite games," Handbook of Computational Economics, in: H. M. Amman & D. A. Kendrick & J. Rust (ed.), Handbook of Computational Economics, edition 1, volume 1, chapter 2, pages 87-142 Elsevier.
- Economides, Nicholas, 1993. "Quality variations in the circular model of variety-differentiated products," Regional Science and Urban Economics, Elsevier, vol. 23(2), pages 235-257, April.
- Hans M. Amman & David A. Kendrick, . "Computational Economics," Online economics textbooks, SUNY-Oswego, Department of Economics, number comp1. Full references (including those not matched with items on IDEAS)