Product Line Pricing in a Vertically Differentiated Oligopoly

George Deltas (), Thanasis Stengos and Eleftherios Zacharias

No 1010, Working Papers from University of Guelph, Department of Economics and Finance

Abstract: This paper empirically examines the joint pricing decision of products in a firm's product line. When products are distinguished by a vertical characteristic, those products with higher values of that characteristic will command higher prices. We investigate whether, holding the value of the characteristic constant, there is a price premium for products on the industry and/or the firm frontier, i.e., for the products with the highest value of the characteristic in the market or in a firm's product line. The existence of price premia for lower ranked products is also investigated. Finally, the paper investigates whether firms set prices to avoid cannibalizing the other products in their portfolio, whether competition with rival firms is stronger for products that are closer to the frontier compared to other products, and whether a product's price declines with the time it is offered by a firm. Using personal computer price data, we show that prices decline with the distance from the industry and firm frontiers. We find evidence that consumer tastes for brands is stronger for the consumers of frontier products (and thus competition between firms weaker in the top end of the market). Finally, there is evidence that a product's price is higher if a firm offers products with the immediately faster and immediately slower computer chip (holding the total number of a firm's offerings constant), possibly as an attempt way to reduce cannibalization.

Keywords: Pricing; Multiproduct rms; Personal Computers; Product Entry and Exit (search for similar items in EconPapers)
JEL-codes: D43 L11 L63 (search for similar items in EconPapers)
Pages: 29
Date: 2010
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-mkt
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Product line pricing in a vertically differentiated oligopoly (2011)
Journal Article: Product line pricing in a vertically differentiated oligopoly (2011)
Working Paper: Product Line Pricing in a Vertically Differentiated Oligopoly (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:gue:guelph:2010-10.

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