EconPapers    
Economics at your fingertips  
 

The Dynamic Provision of Product Diversity under Duopoly

Ramon Caminal ()

No 1045, Working Papers from Barcelona Graduate School of Economics

Abstract: This paper builds a dynamic duopoly model to examine the provision of new varieties over time. Consumers experience temporary satiation, and hence higher consumption of the current variety lowers demand for future varieties. The equilibrium can be characterized by a combination of monopolistic pricing and nearly zero profits (competitive timing). In particular, if the cost of producing a new variety is not too low then firms tend to avoid head-to-head competition and set the short-run profit-maximizing price. However, firms tend to introduce new varieties as soon as demand has grown sufficiently to cover costs. From a second best perspective, the equilibrium may exhibit excessive product diversity. However, if firms coordinate their frequency of new product introductions, then consumers are likely to be harmed. It is also shown that equilibrium prices are moderated by two factors. First, consumers' option value of waiting reduces their willingness to pay. Second, competition reduces firms' incentives to engage in intertemporal price discrimination.

Keywords: temporary satiation; product diversity; dynamic duopoly; repeat purchases; endogenous timing (search for similar items in EconPapers)
JEL-codes: L13 (search for similar items in EconPapers)
Date: 2018-06
New Economics Papers: this item is included in nep-com, nep-ind and nep-knm
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
https://www.barcelonagse.eu/sites/default/files/working_paper_pdfs/1045_0.pdf (application/pdf)

Related works:
Journal Article: The dynamic provision of product diversity under duopoly (2019) Downloads
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:bge:wpaper:1045

Access Statistics for this paper

More papers in Working Papers from Barcelona Graduate School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Bruno Guallar ().

 
Page updated 2021-10-23
Handle: RePEc:bge:wpaper:1045