Working Paper: CEPR ID: DP15708
Authors: Heski Barisaac; Guillermo Caruana; Vicente Cuat
Abstract: We present a model of product design. In our framework, there is an inherent trade-off associated with choosing between broad orniche designs. More-targeted designs are able to excite specific types of consumers, but at the cost of alienating others. We adapt the familiarSalop (1979) circle by allowing firms to locate on the interior. In contrast to previous research that exogenously assumed extremedesigns, we provide conditions that ensure extreme or intermediate designs in monopoly, monopolistic competition, and duopoly. We use theframework to qualify earlier findings in the literature and support the robustness of others.
Keywords: Product Design; Consumer Targeting; Market Competition
JEL Codes: D42; D43; M31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| design choice (broad vs. niche) (D49) | consumer satisfaction (D12) |
| higher marginal costs (D40) | nichier designs (Y90) |
| falling search costs (D83) | nichier designs (Y90) |