Optimal Product Line Design When Consumers Exhibit Choice Set-Dependent Preferences

Orhun, A. Yeşim
September 2009
Marketing Science;Sep/Oct2009, Vol. 28 Issue 5, p868
Academic Journal
In a market of consumers with varying willingness to pay, using product line as a discrimination tool may extract higher profits than serving all consumers with a single product. Local context effects, however, point to yet another consideration in designing product lines: how the appeal of a product changes with the context provided by other products in the choice set. I present a model of product line design that incorporates both discrimination and context management goals and offers recommendations for the variety and positioning of products. To this end, the model makes use of a framework that allows preferences to be choice set dependent. Given this framework, I study how the firm manages externalities between products created by such dependencies. The firm creates distortions above and beyond those resulting from discrimination motives alone. For example, in a vertically differentiated market for quality, quality distortions exist even for the consumers with the highest valuations. The range of quality provisions, given the number of products, is compressed as the relative importance of unfavorable comparisons among products increases. Surprisingly, this compression may even lead the firm to forego discrimination among consumers regardless of the cost of offering distinct products.


Related Articles

  • Choice in Context: Tradeoff Contrast and Extremeness Aversion. Simonson, Itamar; Tversky, Amos // Journal of Marketing Research (JMR);Aug1992, Vol. 29 Issue 3, p281 

    Consumer choice is often influenced by the context, defined by the set of alternatives under consideration. Two hypotheses about the effect of context on choice are proposed. The first hypothesis, tradeoff contrast, states that the tendency to prefer an alternative is enhanced or hindered...

  • Context Dependence and Aggregation in Disaggregate Choice Analysis. Swait, Joffre; Adamowicz, Wiktor; Hanemann, Michael; Diederich, Adele; Krosnick, Jon; Layton, David; Provencher, William; Schkade, David; Tourangeau, Roger // Marketing Letters;Aug2002, Vol. 13 Issue 3, p195 

    There is an emerging consensus among disciplines dealing with human decision making that the context in which a decision is made is an important determinant of outcomes. This consensus has been slow in the making because much of what is known about context effects has evolved from a desire to...

  • Further explanations for context effects: a perspective of ideal and reference points. Huang, Jih-Jeng // Quality & Quantity;Jan2012, Vol. 46 Issue 1, p281 

    Context effects have recently become the one of the main areas of study for understanding consumer choice behavior because they violate two well-known principals: independence from irrelevant alternatives (IIA) and regularity. Four context effects, namely, the attraction, compromise,...

  • Incorporating Context Effects Into a Choice Model. Rooderkerk, Robert P; Van Heerde, Harald J; Bijmolt, Tammo H.A // Journal of Marketing Research (JMR);Aug2011, Vol. 48 Issue 4, p767 

    The behavioral literature provides ample evidence that consumer preferences are partly driven by the context provided by the set of alternatives. three important context effects are the compromise, attraction, and similarity effects. because these context effects affect choices in a systematic...

  • More Evidence Challenging the Robustness and Usefulness of the Attraction Effect. YANG, SYBIL; LYNN, MICHAEL // Journal of Marketing Research (JMR);Aug2014, Vol. 51 Issue 4, p508 

    Ninety-one attempts to produce an attraction effect (involving a total of 23 product classes and 73 different decoyed choice sets) produced only 11 reliable effects—significantly fewer than expected given the statistical power of the studies. Cross-scenario analyses indicated that the use...

  • The Limits of Attraction. FREDERICK, SHANE; LEE, LEONARD; BASKIN, ERNEST // Journal of Marketing Research (JMR);Aug2014, Vol. 51 Issue 4, p487 

    Consumer research has documented dozens of instances in which the introduction of an “irrelevant” third option affects preferences between the remaining two. In nearly all such cases, the unattractive dominated option enhances the attractiveness of the option it most...

  • Economics of paternalism: the hidden costs of self-commanding strategies. Salvat, Christophe // Journal of Philosophical Economics;Autumn2015, Vol. 9 Issue 1, p102 

    The paper proposes an economic assessment of paternalism by comparing different alternative responses to dynamically inconsistent behaviors consecutive to hyperbolic discounting. Two main types of action are possible, self-commanding strategies and paternalism. The first category includes...

  • A FRAMEWORK FOR EXPLORING CONTEXT EFFECTS ON CONSUMER JUDGMENT AND CHOICE. Chakravarti, Dipankar; Lynch Jr., John G. // Advances in Consumer Research;1983, Vol. 10 Issue 1, p289 

    Judgments of a stimulus may be affected not only by the characteristics of the stimulus itself, but also by the other stimuli that accompany it in the judgment context. This paper provides a framework for exploring context effects on consumer judgment and choice processes. First, an outline of...

  • Compatibility, Networks, and Competition: A Review of Recent Advances. Perrot, Anne // Transportation Science;Feb93, Vol. 27 Issue 1, p62 

    This paper is a selective survey of the economic literature on the functioning of the markets where goods are subject to network externalities. Telecommunications, transports and computers give examples of markets where, for various reasons, these network effects appear. We first examine how the...


Read the Article


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

Try another library?
Sign out of this library

Other Topics