The Informational Role of Spanning in Competitive Product Selection

Lynne Pepall

Canadian Journal of Economics, 1989, vol. 22, issue 1, 37-49

Abstract: This paper analyzes (1) the information required by competitive firms to solve price conjectures for differentiated goods that are not currently produced and (2) the feasibility of competitive firms acquiring this information. Products are differentiated according to the Gorman-Lancasterian characteristic approach. The assumption of a linear additive characteristics goods technology simplifies the calculation of price conjectures and facilitates the acquisition of information about consumer demand for new goods. In particular, it enables the firm to use product spanning to work out price conjectures. The paper demonstrates that the true role of spanning in these models is informational.

Date: 1989
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