“Love for variety,” outside option and extensive margin of demand |
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Authors: | Sovik Mukherjee Vivekananda Mukherjee |
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Institution: | 1. Department of Commerce (Morning Section), Faculty of Commerce and Management, St. Xavier's University, Kolkata, India;2. Department of Economics and Finance, BITS Pilani, Hyderabad Campus, Hyderabad, India |
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Abstract: | The paper models a uniform-price Bertrand-price-competition in a differentiated product oligopoly market, where the buyers' preference shows “love for variety.” The buyers differ from each other in their valuation of the differentiated product with a common outside option available to all. The model endogenously determines both the extensive and intensive margin of demand and the equilibrium number of varieties in the differentiated product market. It shows that in such a framework complementarity exists at the extensive margin of demand even in the presence of demand substitutability between the varieties. The results apply to the competition between brick and mortar shops and malls. |
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Keywords: | differentiated products extensive margin love-for-variety oligopoly price competition |
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