Product design rivalry: multiple‐attributes approach to differentiation

This paper studies product design competition between potentially symmetric firms. We specifically employ the multiple‐attributes approach as the method of product design. While various product‐specific attributes contribute to firms' differentiation, they may cause confusion resulting in consumer dissatisfaction. We show that in the presence of these opposite effects and any setup costs for attributes, the differentiation by multiple attributes is beneficial for firms if, and only if they are moderately competitive. We furthermore show that the socially efficient number of attributes can only be sustained when there are not very many firms and the setup cost is low. Copyright © 2008 John Wiley & Sons, Ltd.