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"We show that demand uncertainty leads to vertical product differentiation even when consumers are homogeneous. When a firm anticipates that its inventory or capacity may not be fully utilized, product variety can reduce its expected costs of excess capacity. When the firm offers a continuum of product varieties, the highest quality product has the highest profit margins but the lowest percentage margin, while the lowest quality product has the highest percentage margin but the lowest absolute margin. We derive these results in both a monopoly model and a variety of different competitive models. We conclude with a discussion of empirical predictions together with a brief discussion of supporting evidence available from marketing studies"--National Bureau of Economic Research web site.
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Product variety and demand uncertainty
2004, National Bureau of Economic Research
Electronic resource
in English
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Book Details
Edition Notes
Includes bibliographical references.
Title from PDF file as viewed on 1/27/2005.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.
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