Determinants of product lines
Journal
Rand Journal of Economics
Subject
Economics
Publishing details
Authors / Editors
Johnson J P;Myatt D P
Biographies
Publication Year
2018
Abstract
We study the determinants of product lines in a multi-product Cournot model which allows for cost asymmetries and which eliminates strategic motivations (such as a desire to soften competition) for product-line choice. We identify two distinct forces that lead firms to offer multiple qualities. We then investigate how the interaction of asymmetric competition with these forces shapes equilibrium product lines. Our model predicts a rich variety of possible outcomes, ranging from head-to-head competition (in which all firms offer all products) to complete separation of product lines (so that no product is offer by two or more firms) and including the intermediate case of partial separation. In an international trade context, we predict whether a disadvantaged foreign producer will specialize in higher or lower qualities. If cost factors are the main drivers of quality-based discrimination (so that there are decreasing returns to quality) then foreign firms sell only lower qualities. However, if demand factors are the main drivers (so that, other things equal, the demand for higher qualities is less elastic) then foreign firms sell only high qualities.
Available on ECCH
No
