Cost leadership and pricing in conspicuous goods markets

S. Sajeesh ()
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S. Sajeesh: Baruch College, City University of New York

Economics Bulletin, 2010, vol. 30, issue 4, 3348-3354

Abstract: We study competitive positioning and pricing strategies in markets with negative consumption externalities. Negative consumption externality is modeled as a decrease in preference for a product as more consumers purchase the same product. Using a two stage Hotelling type model, we show that a cost leader prices higher than the cost disadvantaged firm when the magnitude of negative consumption externality in the market is below a threshold otherwise the cost leader prices lower than the cost disadvantaged firm. Also, increase in population density decreases price differential between the cost leader and the cost disadvantaged firm.

Keywords: Negative Consumption Externalities; Cost Leadership; Conspicuous Goods; Pricing; Hotelling Models (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Date: 2010-12-13
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Citations: View citations in EconPapers (1)

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