Positioning and Pricing in a Variety Seeking Market

S. Sajeesh () and Jagmohan S. Raju ()
Additional contact information
S. Sajeesh: Baruch College, City University of New York, New York, New York 10010
Jagmohan S. Raju: The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104

Management Science, 2010, vol. 56, issue 6, 949-961

Abstract: We study competitive positioning and pricing strategies in markets where consumers seek variety. Variety seeking behavior is modeled as a decrease in the willingness to pay for the product purchased on the previous purchase occasion. Using a three-stage Hotelling-type model, we show that the presence of variety seeking consumers reduces product differentiation offered in equilibrium, thereby explaining some otherwise counterintuitive findings in empirical research. We find that firms charge higher prices in Period 1 and lower prices in Period 2. The lower price in Period 2 represents the price incentive that firms need to offer to prevent the variety seeking consumers from switching. Furthermore, we find that the observed switching in a market may not fully capture the true magnitude of the underlying variety seeking tendencies among consumers. Finally, we show that the presence of variety seeking consumers leads to lower firm profits and a higher consumer surplus. Surplus increases for variety seeking consumers as well as regular consumers. Therefore, the presence of variety seeking consumers benefits everyone in the market.

Keywords: variety seeking; positioning; pricing; differentiation; hotelling models (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.1100.1158 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:56:y:2010:i:6:p:949-961

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().