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Prices, Profits, and Preference Dependence

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  • Chen, Yongmin
  • Riordan, Michael

Abstract

We develop a new approach to discrete choice demand for differentiated products, using copulas to separate the marginal distribution of consumer values for product varieties from their dependence relationship, and apply it to the issue of how preference dependence affects market outcomes in symmetric multiproduct industries. We show that greater dependence lowers prices and profits under certain conditions, suggesting that preference dependence is a distinct indicator of product differentiation. We also find new sufficient conditions for the symmetric multiproduct monopoly and the symmetric single-product oligopoly prices to be above or below the single-product monopoly price.

Suggested Citation

  • Chen, Yongmin & Riordan, Michael, 2014. "Prices, Profits, and Preference Dependence," MPRA Paper 64827, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:64827
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    References listed on IDEAS

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    Cited by:

    1. Marius Schwartz & Daniel R. Vincent, 2020. "Platform Competition With Cash‐Back Rebates Under No Surcharge Rules," Journal of Industrial Economics, Wiley Blackwell, vol. 68(2), pages 298-327, June.
    2. Sang‐Hyun Kim & Jong‐Hee Hahn, 2022. "On the profitability of interfirm bundling in oligopolies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 657-673, August.
    3. Barigozzi, Francesca & Ma, Ching-to Albert, 2018. "Product differentiation with multiple qualities," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 380-412.
    4. Chen, Yongmin & Zhang, Tianle, 2018. "Intermediaries and consumer search," International Journal of Industrial Organization, Elsevier, vol. 57(C), pages 255-277.
    5. Burani, Nadia & Mantovani, Andrea, 2020. "Non-linear pricing and conscious consumption," International Journal of Industrial Organization, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    Product differentiation; discrete choice; copula; multiproduct industries.;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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