TITLE

The Existence of Low-End Firms May Help High-End Firms

AUTHOR(S)
Ishibashi, Ikuo; Matsushima, Noriaki
PUB. DATE
January 2009
SOURCE
Marketing Science;Jan/Feb2009, Vol. 28 Issue 1, p136
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
Two models of competition between high-end and low-end products benefiting the high-end firms are presented. One is a quantity competition model, and the other is a price competition model with product differentiation. The key factor is the existence of two heterogeneous consumer groups: those who demand only high-end (name-brand) products and those who care little whether products are high or low end. We show that, under certain conditions, the profits of firms in the high-end market are larger when there are firms producing low-end products than when there are not. The existence of price-sensitive consumers who care little about product quality intensifies competition among the high-end firms. The existence of low-end firms functions as a credible threat, which induces the high-end firms not to overproduce because price-sensitive consumers buy products from the low-end firms. The result provides a new theoretical mechanism concerning the profitability and pricing of national brand firms after the entry of private labels. It has an implication for pricing and marketing strategies: Established firms should not decrease their prices after the entry of nonestablished firms.
ACCESSION #
37206386

 

Related Articles

  • Quantity Discounts in Differentiated Consumer Product Markets. Subramaniam, Ramanathan; Gal-Or, Esther // Marketing Science;Jan/Feb2009, Vol. 28 Issue 1, p180 

    In this paper, we extend the standard Hotelling model of product differentiation to incorporate a second dimension of consumer heterogeneity that relates to the quantity of the product consumers wish to buy. This extension allows us to derive optimal nonlinear pricing rules chosen by competing...

  • The Market Structure for Internet Search Engines. TELANG, RAHUL; RAJAN, UDAY; MUKHOPADHYAY, TRIDAS // Journal of Management Information Systems;Fall2004, Vol. 21 Issue 2, p137 

    The Internet search engine market has seen a proliferation of entrants over the past few years. Whereas Yahoo was the early market leader, there has been entry by both lower-quality engines and higher-quality ones (such as Google). Prior work on quality differentiation requires that low-quality...

  • Content vs. Advertising: The Impact of Competition on Media Firm Strategy. Godes, David; Ofek, Elie; Sarvary, Miklos // Marketing Science;Jan/Feb2009, Vol. 28 Issue 1, p20 

    Media firms compete in two connected markets. They face rivalry for the sale of content to consumers, and at the same time, they compete for advertisers seeking access to the attention of these consumers. We explore the implications of such two-sided competition on the actions and source of...

  • Price competition and quality differentiation with multiproduct firms. Cheng, Yi-Ling; Peng, Shin-Kun // Journal of Economics;Jul2014, Vol. 112 Issue 3, p207 

    This paper examines a two-stage competition where firms simultaneously choose the number of products and qualities in the first stage, and then compete in prices. It is shown that a monopolist must sell a single product. In addition, in any equilibrium of multiproduct duopoly, there are...

  • MULTI-CRITERIA COMPLEX FOR PROFITABILITY ANALYSIS OF CONSTRUCTION PROJECTS. Tamošaitienė, Jolanta; Zavadskas, Edmundas Kazimieras; Turskis, Zenonas; Vainiūnas, Povilas // Economics & Management;2011, Vol. 16, p969 

    In the last decades significant changes in technology, economy, society and politics have seriously modified the environment in which construction enterprises operate. Market globalisation and deregulation encourage appearing of new players. International construction projects do not necessarily...

  • Product–market flexibility and capital structure. Sarkar, Sudipto // Quarterly Review of Economics & Finance;Feb2014, Vol. 54 Issue 1, p111 

    Highlights: [•] A new determinant of capital structure, product–market flexibility, is examined. [•] Product–market flexibility arises from firm's ability to adjust price and/or quantity. [•] Product–market flexibility can have a significant effect on...

  • Can Weak Substitution be Rehabilitated? Smith, V. Kerry; Evans, Mary F.; Banzhaf, H. Spencer; Poulos, Christine // Environmental & Resource Economics;Feb2010, Vol. 45 Issue 2, p203 

    This paper develops a graphical analysis and an analytical model that demonstrate how weak substitution can be used for non-market valuation. Weak complementarity and weak substitution represent preference restrictions that allow us to develop equivalent price changes to describe quantity or...

  • Dynamic Pricing Competition with Strategic Customers Under Vertical Product Differentiation. Qian Liu; Dan Zhang // Management Science;Jan2013, Vol. 59 Issue 1, p84 

    We consider dynamic pricing competition between two firms offering vertically differentiated products to strategic customers who are intertemporal utility maximizers. We show that price skimming arises as the unique pure-strategy Markov perfect equilibrium in the game under a simple condition....

  • Media Watch. Watt, Bruce // BusiDate;May2011, Vol. 19 Issue 2, p10 

    The article focuses on the strategy of grocery stores and companies in the U.S. of reducing food package sizes in response to high cost of raw materials. It says that companies hide the commodities' high prices by sacrificing the quantity of the products. John Gourville from Harvard Business...

Share

Read the Article

Courtesy of VIRGINIA BEACH PUBLIC LIBRARY AND SYSTEM

Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics