Targeted Product Design
American Economic Journal: Microeconomics
vol. 15,
no. 2, May 2023
(pp. 157-86)
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.Citation
Bar-Isaac, Heski, Guillermo Caruana, and Vicente Cuñat. 2023. "Targeted Product Design." American Economic Journal: Microeconomics, 15 (2): 157-86. DOI: 10.1257/mic.20200474Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- D42 Market Structure, Pricing, and Design: Monopoly
- D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
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