Product Differentiation and Multiproduct Strategies

21 Pages Posted: 27 Apr 2006

See all articles by Marco Di Cintio

Marco Di Cintio

University of Salento - Department of Economics and Mathematics and Statistics

Date Written: February 2006

Abstract

This paper analyzes the price-setting behavior of multiproduct firms in a differentiated product market. The structure considered is one where large companies offer either a set of close substitutes (market segmentation) or a set of distant substitutes (market interlacing). The modelling strategy of the paper is to allow for two different elasticities of substitution: the intra-company elasticity of substitution and the inter-company elasticity of substitution. The key feature of the model is the possibility for multiproduct companies to choose their optimal internal organizational structure, according to the relative size of these two parameters. In order to maximize profits, each company may either set prices centrally, or alternatively it may assign an independent product manager to run each division. In other words, product managers of the same company may behave either independently or cooperatively. While the model does not consider either the proliferation or the product-line selection decisions, it deals with multiproduct frms price decisions under oligopolistic competition making use of conjectural variations. Its main purpose has been to provide a micro-founded answer about the question of whether and when a system of independent product managers (decentralized decisions) is better than a mechanism with a centralized general direction. Coordination is always profitable under market segmentation; while under market interlacing, the strategy of relying on independent product managers is profitable when the standard monopolistic competition arises; it may also be profitable with oligopolistic (Bertrand) competition under some assumptions.

Keywords: Product Differentiation, Multi-Product, Conjectural Variations

JEL Classification: D4, L1, L2

Suggested Citation

Di Cintio, Marco, Product Differentiation and Multiproduct Strategies (February 2006). University of Lecce Economics Working Paper No. 81/38, Available at SSRN: https://ssrn.com/abstract=897660 or http://dx.doi.org/10.2139/ssrn.897660

Marco Di Cintio (Contact Author)

University of Salento - Department of Economics and Mathematics and Statistics ( email )

Piazza Tancredi, n7
Lecce, 73100
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
168
Abstract Views
1,207
rank
194,081
PlumX Metrics