Article ID: | iaor20082734 |
Country: | United Kingdom |
Volume: | 14 |
Issue: | 4 |
Start Page Number: | 325 |
End Page Number: | 347 |
Publication Date: | Jul 2007 |
Journal: | International Transactions in Operational Research |
Authors: | Kumar K. Ravi, Hadjinicola George C. |
Keywords: | design, marketing, production |
We examine how product design and pricing are affected when the number of firms in the market increases by considering marketing and production variables. We employ a model that adopts marketing notions such as market shares and ideal points to dictate the attraction of the product to consumers. The model also incorporates production costs where the cost of the product increases linearly with increasing product attribute levels. The modeling framework facilitates the existence of a Nash equilibrium in prices and product positions. The number of firms in the market is exogenously defined. When the number of firms in the market increases, firms lower their prices and design their product with features closer to the market’s ideal point. This results in lower profits.