The effect of firm number on equilibrium product positioning and pricing: a marketing–production perspective

The effect of firm number on equilibrium product positioning and pricing: a marketing–production perspective

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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: ,
Keywords: design, marketing, production
Abstract:

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.

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