Luận Văn Competition in Product Variety Theory and Evidence - Randal Bruce Ross Watson

Competition in product variety: Theory and evidence

This dissertation adds to the industrial organization literature on inter-firm competition in markets for differentiated products. In particular the analysis looks at contexts where producers of a horizontally differentiated good make strategic choices of product range: the number of varieties to sell. The approach here combines theory and data to examine how such choices of product range vary with the intensity of competition and other factors affecting a firm's business environment. Chapter 1 addresses a theoretical aspect of variety competition by incorporating multiproduct firms into the Wolinsky (1986) model of monopolistic competition with consumer search. Existence is demonstrated for free-entry multiproduct equilibria with large numbers of firms, assuming a uniform taste distribution. When industry profits are zero the number of varieties per firm eventually increases as search costs get small, and as the relative costs of initial entry get large. As fixed costs are made arbitrarily small the number of goods brought to market exceeds the social optimum. Chapters 2 and 3 present a two-stage empirical approach to competition in product variety using an original dataset on eyeglasses retailing in 44 geographic markets in the Midwestern United States. Product variety at an eyewear seller is measured by the number of styles of eyeglasses, using a survey of sellers in every market. In the first stage Seim's (2002) model of endogenous geographic differentiation is used to analyse sellers' location choices. Seim's analysis is extended to non-monotonic competition effects in firms' profit functions. These non-monotonicities are significant: profits first rise, then fall, in the number of close competitors. The second stage measures the effect of distance-from-rivals on retailers' product ranges, controlling for the endogeneity of locations. A non-monotone differentiation effect is again seen. For sellers with few nearby rivals an extra competitor raises product variety. With three or more rivals nearby, each additional competitor reduces a firm's variety. Explanations are offered based on consumer search and clustering effects; any such effects are apparently attenuated when more than a few sellers are in close competition.
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[TH]Format:[/TH]
[TD]Dissertation[/TD]
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[TH]Author(s):[/TH]
[TD]Watson, Randal Bruce Ross[/TD]
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[TR]
[TH]Published:[/TH]
[TD]2003[/TD]
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[TH]Language:[/TH]
[TD]English

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Contents
Acknowledgements vi
List of figures x
List of tables xi
Introduction 1
1 Consumer search and multiproduct firms in monopolistic
competition 4
1.1 Introduction 4
1.2 The model . 8
1.3 The firm’s problem: prices 15
1.4 Equilibrium concepts . 20
1.5 Prices in oligopolistic equilibrium 22
1.6 The firrn’s problem: varieties 24
1.7 Equilibrium with free entry . 27
1.8 Welfare properties 36
1.9 Mixed strategies and oligopolistic equilibria 39
1.10 Conclusion 44
1.11 Proofs of propositions 45
2 Modelling entry behaviour in eyewear retailing 57
2.1 Introduction 57
2.2 The entry model . 59
2.3 Accounting for chain identity . . 71
2.4 Computational methods . 75
2.5 Other extensions . 76
2.6 Data 80
2.7 Results . 88
2.8 Results for the model with chain effects 93
2.9 Conclusion 98
3 Product variety and competition in the retail market for
eyeglasses 101
3.1 Introduction 101
3.2 An informal framework . 106
3.3 Competition in product variety . 110
3.4 Data 114
3.5 Results . 119
3.6 Chain stores: some descriptive statistics 125
3.7 Chain stores and variety competition 137
3.8 Conclusions 145
References 164