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Can more consumers lead to lower profits? A model of multi-product competition

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  • Azar, Ofer H.

Abstract

The article analyzes the optimal pricing strategy of duopoly retailers who sell two goods to three consumer segments: two segments that are interested in one good, and one that wants to buy both goods. The analysis suggests that the markup on one of the goods might be negative and that the existence of consumers who buy both goods can either increase or decrease markups. Surprisingly, the addition of the consumers who buy both goods (unchanging the number of the other consumers) might decrease profits, and increasing the number of consumers who buy one good might also reduce profits. This suggests that firms should consider carefully how additional customers might affect the competitive environment and the equilibrium before attempting to attract them to the market.

Suggested Citation

  • Azar, Ofer H., 2010. "Can more consumers lead to lower profits? A model of multi-product competition," Journal of Economic Behavior & Organization, Elsevier, vol. 76(2), pages 184-195, November.
    • Handle: RePEc:eee:jeborg:v:76:y:2010:i:2:p:184-195
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    References listed on IDEAS

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    Cited by:

    1. Noriaki Matsushima & Akira Miyaoka, 2015. "The effects of resale-below-cost laws in the presence of a strategic manufacturer," Quantitative Marketing and Economics (QME), Springer, vol. 13(1), pages 59-91, March.
    2. Noriaki Matsushima & Akira Miyaoka, 2013. "Who benefits from resale-below-cost laws?," ISER Discussion Paper 0875, Institute of Social and Economic Research, Osaka University.

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