Product differentiation and endogenous disutility

Igal Hendel*, John Neiva De Figueiredo

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

18 Scopus citations

Abstract

This paper models the choice of degree of focus (or general purposeness) available to firms by endogenizing transportation costs in an address model of horizontal differentiation. The formulation is in three stages: entry, focus or design competition and price competition. The strategic effect of product design is analyzed. The equilibrium level of general purposeness is shown to depend critically on 'neighbor exclusivity'. The latter and, more generally, market structure and product diversity are shown to depend on the cost of producing general purpose products. If general purposeness is 'free' - to design and produce - only two firms enter the market and set large transportation costs, underproviding product diversity.

Original languageEnglish (US)
Pages (from-to)63-79
Number of pages17
JournalInternational Journal of Industrial Organization
Volume16
Issue number1
DOIs
StatePublished - Nov 1997

Keywords

  • General purposeness
  • Product design
  • Product differentiation

ASJC Scopus subject areas

  • Industrial relations
  • Aerospace Engineering
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management
  • Industrial and Manufacturing Engineering

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