Targeted product design

Bar-Isaac, Heski, Caruana, Guillermo and Cuñat, Vicente ORCID: 0000-0001-7504-2801 (2023) Targeted product design. American Economic Journal: Microeconomics, 15 (2). 157 - 186. ISSN 1945-7669

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Abstract

We propose an intuitive representation of product design in which firms locate inside a circle and consumers in its outer circumference. Designs trade off horizontal and vertical transport costs. Our setting encompasses all linear demand rotations. Firms with lower quality or higher marginal costs choose niche designs that cater to specific consumers at the expense of alienating the rest. Firms choose intermediate designs or more polarized ones, instead, depending on the convexity of the vertical transport cost. We examine such design choices in monopoly, duopoly, and monopolistic competition settings.

Item Type:	Article
Official URL:	https://www.aeaweb.org/journals/mic
Additional Information:	© 2023 American Economic Association
Divisions:	Finance
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	D - Microeconomics > D2 - Production and Organizations > D24 - Production; Cost; Capital and Total Factor Productivity; Capacity D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior D - Microeconomics > D4 - Market Structure and Pricing > D42 - Monopoly D - Microeconomics > D4 - Market Structure and Pricing > D43 - Oligopoly and Other Forms of Market Imperfection
Date Deposited:	24 Jan 2022 10:27
Last Modified:	03 Jul 2025 20:48
URI:	http://eprints.lse.ac.uk/id/eprint/113517

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