Large Firms in Retail Markets: Multiple Products for Heterogeneous Consumers

34 Pages Posted: 5 Nov 2019

See all articles by Luca Macedoni

Luca Macedoni

Aarhus University

Mingzhi Xu

Peking University - Institute of New Structural Economics

Robert C. Feenstra

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: October 25, 2019

Abstract

We study the ability of firms of various sizes to cater to the tastes of different consumer niches. In the presence of consumer niches with heterogeneous tastes, firm performance depends on the appeal of each product in each niche. The selection of products to cater to the taste of one or many niches allows firms to influence their product appeal. Using data on purchases at the household-barcode level from Nielsen, we cluster consumers into niches according to their consumption purchases within the product category of toothpaste. We model product appeal as a demand shifter, which we decompose into a common component and a niche specific component that captures the taste of the niche for a given product. Our main finding is that large firms exploit their greater scope to cater to the tastes of several niches. Furthermore, large firms have mainstream products that are highly valued across niches. In contrast, small firms exploit the taste heterogeneity of niches by offering highly personalized products focused for a few profitable niches.

Keywords: Firm heterogeneity; multi-product firm; consumer heterogeneity; scanner data

JEL Classification: D12, L11, L25, O51

Suggested Citation

Macedoni, Luca and Xu, Mingzhi and Feenstra, Robert C., Large Firms in Retail Markets: Multiple Products for Heterogeneous Consumers (October 25, 2019). Available at SSRN: https://ssrn.com/abstract=3475289 or http://dx.doi.org/10.2139/ssrn.3475289

Luca Macedoni (Contact Author)

Aarhus University ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

Mingzhi Xu

Peking University - Institute of New Structural Economics ( email )

Bejing, AK Bejing
China

Robert C. Feenstra

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
916-752-9240 (Phone)
916-752-9382 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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