Template-Type: ReDIF-Paper 1.0
Author-Name: George Deltas
Author-Name-First: George
Author-Name-Last: Deltas
Author-Name: Eleftherios Zacharias
Author-Name-First: Eleftherios
Author-Name-Last: Zacharias
Title: Product Proliferation and Pricing in a Market with Positional Effects
Abstract: We provide an explanation for product versioning that is not driven by differential costs or consumer preference heterogeneity, and investigate its implications. Consumers care whether a product they own is better than that owned by others, and whether others own a better product than them. These positional effects can induce a firm to offer products of different quality, with<br/>the high quality product becoming more exclusive as these effects strengthen. Consumers with no positional preferences become worse off when the broader market acquires them, except following the introduction of the second product, when some such consumers become better off. Positional preference also reduce total consumer surplus holding the number of products fixed; however, they increase consumer surplus if they lead the firm to introduce a second product of<br/>sufficiently high quality. We discuss empirical implications of the theory.<br/>
Creation-Date: 2018
File-URL: http://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/LancasterWP2018_014.pdf
File-Format: application/pdf
Number: 242312853
Classification-JEL: L11, D11, D42
Keywords: Relative consumption, status effects, positional externalities, Veblen goods
Handle: RePEc:lan:wpaper:242312853