Beyond Plain Vanilla: Modeling Joint Product Assortment and Pricing Decisions

54 Pages Posted: 20 Dec 2007

Date Written: June 2008

Abstract

In this paper, we take a first step toward exploring empirically the product assortment strategies of oligopolistic firms. Our starting point is a discrete-choice demand model for differentiated products. We incorporate the demand model into an equilibrium supply model, in which firms compete by first choosing which products to offer and then by setting prices. We show how modeling joint product assortment and pricing decisions enriches standard product choice models by allowing insights into how demand characteristics affect firms' product offerings in a competitive environment. We furthermore demonstrate that incorporating endogenous product choice into demand models is essential for policy simulations (e.g., mergers) as it entails at times dramatically different welfare assessments than the common assumption that product assortments are exogenous.

Keywords: Product Management, discrete games, multiproduct firms, product assortment decisions

JEL Classification: L0, L1, L2, L8, M3

Suggested Citation

Draganska, Michaela and Mazzeo, Michael J. and Seim, Katja, Beyond Plain Vanilla: Modeling Joint Product Assortment and Pricing Decisions (June 2008). Stanford University Graduate School of Business Research Paper No. 1982R, Available at SSRN: https://ssrn.com/abstract=1077441 or http://dx.doi.org/10.2139/ssrn.1077441

Michaela Draganska (Contact Author)

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

Michael J. Mazzeo

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-467-7551 (Phone)

Katja Seim

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
214
Abstract Views
1,325
rank
181,696
PlumX Metrics