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Equilibrium Product Lines: Competing Head-to-Head May be Less Competitive
The American Economic Review
Vol. 82, No. 4 (Sep., 1992), pp. 740-755
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/2117342
Page Count: 16
You can always find the topics here!Topics: Consumer prices, Capital costs, Economic competition, Shopping, Product lines, Economic costs, Consumer equilibrium, Consumer spending, Consumer goods, Brands
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I suggest a new model of demand for variety that explains why competing firms may choose very similar product lines: if firms offer different product ranges, some consumers use multiple suppliers to increase variety, and since these consumers' purchases will be sensitive to the difference in firms' prices, the market may be fairly competitive. If, instead, firms offer identical product ranges, each consumer purchases from one firm only, because of costs of using additional suppliers, so the market may be less competitive and equilibrium prices higher. This contrasts with the standard intuition that firms minimize competition by differentiating their products.
The American Economic Review © 1992 American Economic Association