 The dynamic provision of product diversity under duopolyInternational Journal of Industrial Organization, 2019, vol. 65, issue C, 248-276 Abstract: This paper builds a dynamic duopoly model to examine the provision of new varieties over time. Consumers experience temporary satiation, and hence higher consumption of the current variety lowers demand for future varieties. The equilibrium can be characterized by a combination of monopolistic pricing and nearly zero profits (competitive timing). In particular, if the cost of producing a new variety is not too low then firms tend to avoid head-to-head competition and set the short-run profit maximizing price. However, firms tend to introduce new varieties as soon as demand has grown sufficiently to cover costs. From a second best perspective, the equilibrium may exhibit excessive product diversity. However, if firms coordinate their frequency of new product introductions, then consumers are likely to be harmed. It is also shown that equilibrium prices are moderated by two factors. First, consumers’ option value of waiting reduces their willingness to pay. Second, competition reduces firms’ incentives to engage in intertemporal price discrimination. Keywords: Temporary satiation; Product diversity; Dynamic duopoly; Repeat purchases; Endogenous timing (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:65:y:2019:i:c:p:248-276 DOI: 10.1016/j.ijindorg.2019.05.001 Access Statistics for this article International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal More articles in International Journal of Industrial Organization from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.