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Rivalry in Price and Location by Differentiated Product Manufacturers
Author(s) -
Richards Timothy J.,
Allender William J.,
Hamilton Stephen F.
Publication year - 2013
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aas137
Subject(s) - rivalry , product (mathematics) , incentive , industrial organization , business , space (punctuation) , microeconomics , product differentiation , marketing , economics , commerce , computer science , mathematics , geometry , cournot competition , operating system
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.