Product Proliferation and Pricing in a Market with Positional Effects

Deltas, George and Zacharias, Eleftherios (2018) Product Proliferation and Pricing in a Market with Positional Effects. Working Paper. Lancaster University, Department of Economics, Lancaster.

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Abstract

We provide an explanation for product versioning that is not driven by differential costs or consumer preference heterogeneity, and investigate its implications. Consumers care whether a product they own is better than that owned by others, and whether others own a better product than them. These positional effects can induce a firm to offer products of different quality, with the high quality product becoming more exclusive as these effects strengthen. Consumers with no positional preferences become worse off when the broader market acquires them, except following the introduction of the second product, when some such consumers become better off. Positional preference also reduce total consumer surplus holding the number of products fixed; however, they increase consumer surplus if they lead the firm to introduce a second product of sufficiently high quality. We discuss empirical implications of the theory.

Item Type: Monograph (Working Paper)
Subjects:
Departments: Lancaster University Management School > Economics
ID Code: 126486
Deposited By: ep_importer_pure
Deposited On: 27 Jul 2018 15:36
Refereed?: No
Published?: Published
Last Modified: 18 Feb 2020 00:28
URI: https://eprints.lancs.ac.uk/id/eprint/126486

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