Rivalry in Price and Location by Differentiated Product Manufacturers

Timothy J. Richards, William J. Allender and Stephen Hamilton

American Journal of Agricultural Economics, 2013, vol. 95, issue 3, 650-668

Abstract: In this article, we estimate a model of strategic rivalry between food manufacturers in product design and pricing. We derive a spatial structural model in which food manufacturers jointly select prices and the optimal attribute composition of their product lines. We find that manufacturers have an incentive to locate yogurt products nearby others in attribute space and that products with the most similar attribute compositions enjoy the widest price-cost margins. Our findings explain the observation that most consumer package goods tend to be very similar, yet manufacturers appear to earn above-normal profits. Copyright 2013, Oxford University Press.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:oup:ajagec:v:95:y:2013:i:3:p:650-668

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