PRODUCT VARIETY AND DEMAND UNCERTAINTY: WHY MARKUPS VARY WITH QUALITY -super-*
Dennis Carlton () and
James Dana ()
Journal of Industrial Economics, 2008, vol. 56, issue 3, 535-552
We demonstrate that demand uncertainty can explain equilibrium product variety in the presence of sunk costs. Product variety is an efficient response to uncertainty because it reduces the expected costs associated with excess capacity. We find that within the firm's product line, the highest quality product has the highest profit margin but the lowest percentage margin, while the lowest quality product has the highest percentage margin but the lowest absolute margin. Both of these relationships are consistent with evidence available from marketing studies. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed
Downloads: (external link)
http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-6451.2008.00353.x link to full text (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bla:jindec:v:56:y:2008:i:3:p:535-552
Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0022-1821
Access Statistics for this article
Journal of Industrial Economics is currently edited by Pierre Regibeau, Yeon-Koo Che, Kenneth Corts, Thomas Hubbard, Patrick Legros and Frank Verboven
More articles in Journal of Industrial Economics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().