Beyond plain vanilla: Modeling joint product assortment and pricing decisions

Michaela Draganska*, Michael Mazzeo, Katja Seim

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

60 Scopus citations

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 languageEnglish (US)
Pages (from-to)105-146
Number of pages42
JournalQuantitative Marketing and Economics
Volume7
Issue number2
DOIs
StatePublished - 2009

Keywords

  • Discrete games
  • Multi-product firms
  • Product assortment decisions

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)
  • Marketing

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