Abstract
This paper investigates empirically the product assortment strategies of oligopolistic firms. We develop a framework that integrates product choice and price competition in a differentiated product market. The present model significantly improves upon the reduced-form profit functions typically used in the entry and location choice literature, because the variable profits that enter the product-choice decision are derived from a structural model of demand and price competition. Given the heterogeneity in consumers' product valuations and responses to price changes, this is a critical element in the analysis of product assortment decisions. Relative to the literature on structural demand models, our results show that incorporating endogenous product choice is essential for policy simulations and may entail very different conclusions from settings where product assortment choices are held fixed.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 105-146 |
| Number of pages | 42 |
| Journal | Quantitative Marketing and Economics |
| Volume | 7 |
| Issue number | 2 |
| DOIs | |
| State | Published - 2009 |
Funding
The authors thank MSI for financial support and Noriko Kakihara for excellent research assistance. This paper has greatly benefited from comments from Ulrich Doraszelski, Brett Gordon, Ken Wilbur and seminar audiences at University of Chicago, Duke, UNC, USC, and the Summer Institute for Competitive Strategy at Berkeley.
Keywords
- Discrete games
- Multi-product firms
- Product assortment decisions
ASJC Scopus subject areas
- Economics, Econometrics and Finance (miscellaneous)
- Marketing