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Selecting valuation distributions: non-price decisions of multi-product firms


Bossard, Stefanie; Schmutzler, Armin (2021). Selecting valuation distributions: non-price decisions of multi-product firms. Working paper series / Department of Economics 396, University of Zurich.

Abstract

This paper analyzes decisions of multi-product firms regarding product selection, innovation and advertising as choices of consumer valuation distributions. We show that a profit-maximizing monopolist chooses these distributions so as to maximize the dispersion of the valuation differences between goods across consumers. By contrast, she chooses the willingness-to-pay to be maximally or minimally dispersed, depending on the set of available distributions. In our benchmark model with uniform valuation differences, prices are increasing in valuation difference heterogeneity, but in more general settings this is not necessarily true. Moreover, the relation between willingness-to-pay heterogeneity and prices may well be non-monotone. Over wide parameter ranges, the firm’s choice of valuation distribution does not maximize net consumer surplus. This problem is exacerbated when the firm has access to strategies that distort valuation heterogeneity or willingness-to-pay heterogeneity.

Abstract

This paper analyzes decisions of multi-product firms regarding product selection, innovation and advertising as choices of consumer valuation distributions. We show that a profit-maximizing monopolist chooses these distributions so as to maximize the dispersion of the valuation differences between goods across consumers. By contrast, she chooses the willingness-to-pay to be maximally or minimally dispersed, depending on the set of available distributions. In our benchmark model with uniform valuation differences, prices are increasing in valuation difference heterogeneity, but in more general settings this is not necessarily true. Moreover, the relation between willingness-to-pay heterogeneity and prices may well be non-monotone. Over wide parameter ranges, the firm’s choice of valuation distribution does not maximize net consumer surplus. This problem is exacerbated when the firm has access to strategies that distort valuation heterogeneity or willingness-to-pay heterogeneity.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:D43, L13, M30
Uncontrolled Keywords:Product choice, multiproduct firms, product heterogeneity, valuation distributions, consumer confusion
Language:English
Date:October 2021
Deposited On:11 Oct 2021 16:41
Last Modified:11 Oct 2021 16:41
Series Name:Working paper series / Department of Economics
Number of Pages:38
ISSN:1664-705X
OA Status:Green
Official URL:https://www.econ.uzh.ch/de/research/publications/workingpapers.html?paper-id=1078

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