Abstract

http://ssrn.com/abstract=1299273
 
 

References (29)



 
 

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Product Variety and Demand Uncertainty: Why Markups Vary with Quality


Dennis W. Carlton


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

James D. Dana Jr.


Northeastern University - Department of Economics; Northeastern University - Department of International Business and Strategy; Harvard Business School


The Journal of Industrial Economics, Vol. 56, Issue 3, pp. 535-552, September 2008

Abstract:     
We demonstrate that demand uncertainty can explain equilibrium product variety in the presence of sunk costs. Product variety is an efficient response to uncertainty because it reduces the expected costs associated with excess capacity. We find that within the firm's product line, the highest quality product has the highest profit margin but the lowest percentage margin, while the lowest quality product has the highest percentage margin but the lowest absolute margin. Both of these relationships are consistent with evidence available from marketing studies.

Number of Pages in PDF File: 18

Accepted Paper Series


Date posted: November 12, 2008  

Suggested Citation

Carlton , Dennis W. and Dana, James D., Product Variety and Demand Uncertainty: Why Markups Vary with Quality. The Journal of Industrial Economics, Vol. 56, Issue 3, pp. 535-552, September 2008. Available at SSRN: http://ssrn.com/abstract=1299273 or http://dx.doi.org/10.1111/j.1467-6451.2008.00353.x

Contact Information

Dennis W. Carlton (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
312-322-0215 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
James D. Dana Jr.
Northeastern University - Department of Economics ( email )
301 Lake Hall
Boston, MA 02115
United States
617-373-7517 (Phone)
HOME PAGE: http://www.economics.neu.edu/dana/
Northeastern University - Department of International Business and Strategy
360 Huntington Ave
Boston, MA 02115
United States
Harvard Business School ( email )
Harvard Business School
Soldiers Field Road
Boston, MA 02163
United States
617-495-6958 (Phone)
HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=438792
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