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S. Sajeesh
''Cost leadership and pricing in conspicuous goods markets''
( 2010, Vol. 30 No.4 )
We study competitive positioning and pricing strategies in markets with negative consumption externalities. Negative consumption externality is modeled as a decrease in preference for a product as more consumers purchase the same product. Using a two stage Hotelling type model, we show that a cost leader prices higher than the cost disadvantaged firm when the magnitude of negative consumption externality in the market is below a threshold otherwise the cost leader prices lower than the cost disadvantaged firm. Also, increase in population density decreases price differential between the cost leader and the cost disadvantaged firm.
Keywords: Negative Consumption Externalities, Cost Leadership, Conspicuous Goods, Pricing, Hotelling Models
JEL: D4 - Market Structure and Pricing: General
L1 - Market Structure, Firm Strategy, and Market Performance: General
Manuscript Received : Aug 25 2010 Manuscript Accepted : Dec 13 2010

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