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

  • 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...

  • A New Way to Measure Competition. Boone, Jan // Economic Journal;Aug2008, Vol. 118 Issue 531, p1245 

    This article introduces a new way to measure competition based on firms' profits. Within a general model, we derive conditions under which this measure is monotone in competition, where competition can be intensified both through a fall in entry barriers and through more aggressive interaction...

  • 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...

  • 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....

  • 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...

  • DON'T GIVE UP ON OUR LOFTIEST MARKETING GOALS. Matanovich, Timothy // Marketing Research;Fall2001, Vol. 13 Issue 3, p41 

    Comments on the article "Marketing: Romantic or Realist? by Andrew Ehrenberg published in the summer 2001 issue of "Marketing Research" magazine. Key elements for finding opportunities for universal growth; Background on the different levels of differentiation; Recommendations for changing...

  • Flavor as a Business Building Strategy. Kann, Steven L. // Prepared Foods;Apr2006, Vol. 175 Issue 4, p69 

    Offers tips for food companies in the U.S. on incorporating flavor in their marketing strategy. Advantages of utilizing flavor as a business strategy such as it ensures distinct brand differentiation and it can be a measurable reason for higher price points; Significance of flavor to food;...

  • To Differentiate or Not to Differentiate: A Question When Some Consumers Are Loyal. Yan Meng // Theoretical & Applied Economics;Oct2010, Vol. 17 Issue 10, p83 

    I analyze a duopoly that competes first in product characteristics and then in prices. I show that when there exist consumers that are loyal to specific brands with no regard for product characteristics, the second-stage price game doesn't have a pure-strategy equilibrium or symmetric...

Share

Read the Article

Courtesy of THE LIBRARY OF VIRGINIA

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

Try another library?
Sign out of this library

Other Topics