38 Pages Posted: 25 Apr 2008 Last revised: 20 May 2009
Date Written: May 11, 2009
We present a demand system for tied goods incorporating dynamics arising from the tied-nature of the products and the stockpiling induced by storability and durability. We accommodate competition across tied good systems and competing downstream retail formats by endogenizing the retail format at which consumers choose to stockpile inventory. This facilitates measurement of long-run retail substitution effects and yields estimates of complementarities within, and substitution across, competing systems of tied-goods. We present an empirical application to an archetypal tied-goods category, razors and blades. We discuss the implications of measured effects for manufacturer pricing when selling the tied products through an oligopolistic downstream retail channel and assess the extent to which retail substitution reduces channel conflict.
Keywords: tied goods, retail competition, dynamic discrete choice, durable good replacement, endogenous consumption, long-run effects, vertical channels, razor-blade market
JEL Classification: C25, C61, D91, L11, L12, L16, L68, M31
Suggested Citation: Suggested Citation
Hartmann, Wesley R. and Nair, Harikesh, Retail Competition and the Dynamics of Consumer Demand for Tied Goods (May 11, 2009). Stanford University Graduate School of Business Research Paper No. 1990. Available at SSRN: https://ssrn.com/abstract=1124593 or http://dx.doi.org/10.2139/ssrn.1124593