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RESTORING THE PRINCIPLE OF MINIMUM DIFFERENTIATION IN PRODUCT POSITIONING
Author(s) -
Rhee ByongDuk,
Palma André,
Fornell Claes,
Thisse JacquesFrançois
Publication year - 1992
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1430-9134.1992.00475.x
Subject(s) - unobservable , product differentiation , standardization , competition (biology) , product (mathematics) , work (physics) , limiting , economics , microeconomics , mathematical economics , econometrics , computer science , mathematics , engineering , mechanical engineering , ecology , geometry , cournot competition , biology , operating system
Most research on product positioning supports the idea of differentiation. Product standardization (i.e., minimum differentiation) occurs only under very limiting assumptions. Yet, similar products are often observed in the marketplace. We attempt to restore the case for standardization by using more realistic assumptions than in previous work. We assume that consumers consider not only observable attributes in brand choice, but also attributes that are unobservable by the firms. We find that standardization is an equilibrium when consumers exhibit sufficient heterogeneity along the unobservable attributes under both positioning with exogenously given prices and price competition, We also show that, under insufficient heterogeneity along the unobservable attribute, our results coincide with past research that argues in favor of differentiation.