Targeted product design
Heski Bar-Isaac (),
Guillermo Caruana and
Vicente Cuñat ()
No 15708, CEPR Discussion Papers from C.E.P.R. Discussion Papers
We present a model of product design. In our framework, there is an inherent trade-off associated with choosing between broad or niche designs. More-targeted designs are able to excite specific types of consumers, but at the cost of alienating others. We adapt the familiar Salop (1979) circle by allowing firms to locate on the interior. In contrast to previous research that exogenously assumed extreme designs, we provide conditions that ensure extreme or intermediate designs in monopoly, monopolistic competition, and duopoly. We use the framework to qualify earlier findings in the literature and support the robustness of others.
JEL-codes: D42 D43 M31 (search for similar items in EconPapers)
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