PRODUCT FUNCTIONALITY,COMPETITION, AND MULTIPURCHASING |
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| Authors: | Simon P Anderson Øystein Foros Hans Jarle Kind |
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| Institution: | 1. University of Virginia, U.S.A;2. NHH Norwegian School of Economics, Norway;3. NHH Norwegian School of Economics, NorwayWe thank Fang Guo and Yiyi Zhou for spirited research assistance. Furthermore, we thank participants at the 10th World Congress of the Econometric Society, August 21, 2010, Shanghai, China;4. the Conference on Platform Markets: Regulation and Competition Policy, June 1, 2010, Mannheim, Germany;5. the 8th IIOC, May 16, 2010, Vancouver, Canada;6. and EARIE, September 2, 2011, Stockholm, Sweden, for helpful comments. |
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| Abstract: | The more functionalities a good offers, the greater is its perceived quality. Equilibrium prices in standard spatial competition models depend solely on quality differences. We assume that new functionalities are more appreciated the closer a product is to a consumer's ideal variety. Prices are then increasing in functionality levels. Furthermore, we endogenize whether consumers buy only one of two varieties (single‐purchase) or both (multipurchase). Under multipurchase, there might be a hump‐shaped relationship between equilibrium prices and functionality levels. Therefore, it could be optimal for each supplier to sacrifice sales and set prices so high that multipurchase is eliminated. |
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