Competition with targeted product design: Price, variety, and welfare

Miguel González-Maestre and Lluís M. Granero

International Journal of Industrial Organization, 2018, vol. 59, issue C, 406-428

Abstract: We consider the price and welfare effects of competition in targeted product design, in the context of the Salop circle model. Changes in product design lead to demand rotations that set the stage for our analysis. With an exogenous number of firms, we show that the degree of targeted product design tends to increase with the number of firms. Moreover, under reasonable conditions, price-increasing competition takes place, for intermediate levels of the number of firms. This effect is associated with the possibility of lower consumer welfare. With endogenous firm entry, an interesting insight from our analysis is that in some situations an increase in market size or a technological progress that reduces entry costs both might reduce consumers’ welfare.

Keywords: Price-increasing competition; Welfare; Targeted product design; Generic product design (search for similar items in EconPapers)
JEL-codes: D43 L11 L13 M31 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:59:y:2018:i:c:p:406-428

DOI: 10.1016/j.ijindorg.2018.02.009

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